samchain/econo-pairs-v1 huggingface dataset:
With the mounting concerns in financial markets over the ability of several, mainly peripheral European countries to handle their public debt level, the situation has evolved significantly. Exchange rate developments became a challenge for the Swiss National Bank (SNB). With interest rates at zero and limited means to further expand monetary policy through other quantitative easing channels, exchange rate interventions were a necessary unconventional monetary policy tool. The SNB made it clear that it would fight off “safe haven” flows out of the Euro in accordance with its objective to prevent deflationary risks from materializing by way of an excessive appreciation of the Swiss franc. This strategy of fighting off deflation risks has yielded the intended results. The deflationary risk in Switzerland has largely disappeared and the Swiss economy has been able to benefit from the ongoing recovery of the global economy. While the weakening of the Euro with respect to the Swiss franc is dampening export activity, exports are being supported by growth in foreign demand. Overall, today the outlook for the Swiss economy remains a favourable one. Admittedly, the adopted strategy is not without risk which comes primarily in the form of increased currency and concentration risk in the SNB’s balance sheet. This risk reflects the burden the SNB has assumed in order to protect the Swiss economy from the threat of deflation. The SNB has sufficient equity capital to withstand even large losses.

Philipp M Hildebrand: Europe’s fiscal challenges Speech by Mr Philipp M Hildebrand, Chairman of the Governing Board of the Swiss National Bank, at the Annual General Meeting of the Swiss-American Chamber of Commerce, Rüschlikon, Switzerland, 21 June 2010. *  *  *  I would like to thank Rita Kobel Rohr for her valuable support in drafting this speech. I also want to thank Matthias Lutz for helpful comments. I want to thank the Swiss American Chamber of Commerce for the kind invitation. It is a privilege to speak to you this evening at your Annual General Meeting. The last time I was with you – it is now nearly two years ago –, I paid homage to Albert Gallatin, the legendary Swiss-American Secretary of the Treasury of the United States at the beginning of the 19th century. On that occasion, I chose to honour Gallatin because I felt he incorporates fundamental values long shared by Swiss and Americans alike. As it turns out, recent developments in Europe and elsewhere demonstrate compellingly that one of the important lessons of Gallatin’s outstanding career remains particularly relevant today. He teaches us that public debt reduction requires unwavering political commitment to fiscal discipline. In my remarks this evening, I will attempt to put the fiscal challenges Europe is currently facing in a broader context. The handling of these challenges by Europe’s governments and its citizens will have implications for Switzerland, but also for the United States and ultimately for the world.
Inflation of more than 4 percent is usually a sign of economic instability. If unemployment in a country is persistently above 4 percent, there is probably something wrong both with the functioning of the labour market and with the level of political ambition. And the financial crisis has shown that total banking sector lending in the most heavily indebted countries has often been more than 4 times GDP.18 In this situation, any rescue packages would be too expensive for taxpayers – Ireland and Iceland are two examples. This is a familiar element in our everyday lives. Speed limits are an example of such a rule. Calculating the optimal speed for a specific car on a specific road is extremely complicated. It would require considerable knowledge of both mechanics and physics. Speed limits help us. Of course, it might be optimal to drive faster or slower than the speed limit, but the rule is simple to understand and easy to enforce. This simple rule helps to shape our behavioural patterns to ensure efficiency and safety in the traffic system. Simple rules can also make it easier to resist the temptation to postpone problems. Economists call this the time inconsistency problem. Odysseus solved his time inconsistency problem by having himself tied to the mast and instructing his crew to plug their ears with wax and ignore him when he would later ask them to steer the ship towards the song of the Sirens. That was an easy rule for the crew to follow.

Jan F Qvigstad: On learning from history – truths and eternal truths Speech by Mr Jan F Qvigstad, Deputy Governor of Norges Bank (Central Bank of Norway), at the Norwegian Academy of Science and Letters, Oslo, 13 November 2012. The text below may differ from the actual presentation. This speech does not contain assessments of the economic situation or current interest rate setting. *  *  *  I have received valuable assistance in preparing this speech. Outside the Bank, I would like to thank Mike Bordo, Marc Flandreau, Henrik Mestad, Henrik Syse and Knut Sydsæter. At the Bank, I would like to thank the following persons in particular for their contributions: Øyvind Eitrheim, Amund Holmsen, Jon Nicolaisen, Øystein Olsen, Øystein Sjølie, Birger Vikøren NS Mari Aasgaard Walle. I would also like to thank Helle Snellingen for her contribution to the translation of the text into English. Introduction All scientific and scholarly disciplines have a particular, and not immutable, set of truths. Mathematics and theology are possible exceptions, though for different reasons. As the late Professor Knut Sydsæter underscored when assisting me with this speech; in mathematics new results are proved on the basis of fundamental axioms and become new truths. Theology also relies on truths, even eternal truths. Even if logical proofs of God’s existence have long been an important pursuit, it is safe to say that the truths in theology today stem from faith.
Similarly, innovations in the financial realm have enabled businesses to limit risk and specialize in their core competencies, and households to smooth consumption. This in turn has enabled the economy to be more productive. Instead, a critical objective of prudential oversight and regulation should be to enhance the system so that financial transactions of all forms reflect an assessment of risk and return by both the borrower and the lender that is as accurate as possible, recognizing that we live in an inherently uncertain world. This means that our reform efforts should be aimed at strengthening the quality of information and the system of incentives governing risk-taking by both institutions and individuals. And on those occasions when regulators judge that a systematic understatement and mispricing of risk may be occurring, we need to find better and more effective ways to actively lean against those dynamics. This includes using the bully pulpit to point out why a particular boom is likely to prove unsustainable. It also means ensuring that markets are structured so that investors with differing perspectives on the value of an asset are able to actively participate. Booms tend to go further when the ability to “go short” is limited or emerges only late in the game. Second, regulation needs to be oriented to establishing standards that will be appropriate throughout the cycle – for both the boom period and the bust.

For example, the U.S. housing boom was unsustainable because it was not possible to indefinitely keep relaxing credit underwriting standards to qualify new buyers to stoke demand. It was also unsustainable because the rise in prices often led to a supply response that limited the prospect of further price increases. 2  BIS central bankers’ speeches  Another class of threats to financial stability emerge from sudden reversals of market sentiment regarding economic policy and institutional arrangements. This is a complex issue which I will not explore in detail today, other than to note that here too, early profits all too often feed pro-cyclical behavior, undermining market discipline. This in turn facilitates the accumulation of both private and public imbalances that are painfully difficult to unwind when financing suddenly stops. When sudden reversals occur, large costs are imposed on the real economy and the financial system, costs that are not fully internalized by the market participants that may have benefited from the boom. The often significant negative externalities associated with financial market instability suggest that regulation and prudential standards should be aimed both at limiting the frequency and extent of booms and at building a more resilient financial system, so there is less damage when the busts inevitably occur. The goal here is not to use regulation to prevent or even limit innovation, whether real or financial. Many innovations have generated significant benefits for the macro-economy. For example, the Internet, which lay at the heart of the tech bubble, generated myriad benefits.
Ardian Fullani: Overview of Albania’s latest economic and financial developments Speech by Mr Ardian Fullani, Governor of the Bank of Albania, on the Monetary Policy Decision-Making of the Bank of Albania’s Supervisory Council, Tirana, 27 November 2012. *  *  *  Today, on 27 November 2012, the Bank of Albania’s Supervisory Council reviewed and approved the monthly Monetary Policy Report. Based on the latest monetary and economic developments in Albania, and following the discussions on their future outlook, the Bank of Albania’s Supervisory Council decided to keep the key interest rate unchanged, at 4.00%. The Supervisory Council deems that the current monetary conditions are adequate to meet Bank of Albania’s inflation target in the medium term. These conditions ensure the necessary monetary stimulus to support the domestic demand. Let me now proceed with an overview of the economic developments and key issues discussed at today’s meeting. *** Annual inflation fell for the second consecutive month, down to 2.4% in October. Its performance was driven by food price developments, which account for almost 70% of the inflation rate. Prices of other consumer basket items moved in different directions, retaining their contribution at the same levels as in the previous months. From the macroeconomic viewpoint, inflation rate continued to be determined by temporary externally-generated supply factors and structural changes in the domestic market. The slow performance of economic activity is associated with low increase in producer costs and low pressures on inflation.

Also, moderate growth of monetary indicators, low increases in global prices and well-anchored inflationary expectations have generated contained inflationary pressures. In general, this situation is expected to continue over the period ahead. Data on third-quarter economic activity are partial and are based on indirect indicators. Their analysis suggests positive but low growth of the domestic economy over this period. Industry, agriculture and services are the sectors that have supported the economic growth, while construction does not highlight any signs of improvement in the current and expected activity. In the aggregate demand, foreign demand remained the main driver to economic growth in the third quarter. The domestic demand appears to have weakened due to lack of fiscal stimulus and sluggish private investments and consumption. Fiscal policy was consolidating in 2012. It is reflected in the 19% decline in the budget deficit of the first ten months of the year, leading to maintaining of fiscal indicators sustainability over this period. On the other hand, the performance of expenditure and budget deficit did not support the aggregate demand growth. Public spending for the first ten months of the year resulted 0.2% less than a year earlier, reflecting the low increase in the budget revenues. The latter increased at low annualised rates during the year, resulting at the end of October only 2% higher than a year earlier.
The economic outlook and monetary policy in the euro area I will start by discussing the current state of the euro area economy and the medium-term economic outlook. The performance of the euro area economy this year is characterised by the ongoing recovery of economic activity at a pace somewhat faster than previously envisaged. Inflation, however, has remained above (though relatively close to) 2%. This outcome is not in line with our notion of price stability and is higher than the average inflation expected a year ago for 2004. The sharp rise in oil prices since the beginning of this year, by about 60% (in US dollar terms), has been the main reason for the higher than earlier expected inflation. Let me elaborate a bit on the pace of the economic recovery, the factors that have contributed so far to the pick-up in growth, and the conditions and basic factors that are expected to influence the mediumterm economic prospects. Since the start of the economic recovery in the second half of 2003, we have seen robust growth rates in the first half of 2004, with real GDP increasing by 0.7% and 0.5% in the first and second quarters, respectively. The recovery in growth has so far been driven partly by buoyant external demand and partly by domestic demand. Private consumption increased moderately but investment was subdued. Although short-term indicators have become more mixed over the past couple of months, the underlying determinants of economic activity remain favourable, and growth is expected to continue in 2005.

On the external side, euro area exports should continue to benefit from positive global demand conditions in 2005. I admit, we have seen some moderation in global growth rates following a period in which the world economy has experienced its strongest dynamism in many years. We view this moderation, however, as an orderly return to sustainable, and still robust, rates of growth. On the domestic side, investment has thus far been subdued, partly due to weak construction investment. Looking ahead, investment should be supported by the global environment and the continuing very favourable financing conditions in the euro area. In addition, improved earnings and greater corporate efficiency gained through business restructuring should support investment. As regards consumption, we see scope for it to strengthen further, particularly once employment prospects have improved more visibly. As with any assessment of the future, this outlook is surrounded by some uncertainty. In particular, there are risks to growth prospects stemming from unfavourable developments in oil markets. In this respect, let me emphasise a number of characteristics of the recent rise in oil prices. First, it is evident  BIS Review 66/2004  1  that recent oil price developments differ somewhat from previous oil price shocks, as they have been partly driven by buoyant global demand, and not only by constraints on the supply side. Second, oil prices, in real terms, have remained at a much lower level than in previous episodes. Third, the oil-intensity of production is lower in the euro area than it was in the past.
Moreover, irrespective of such extreme situations, we have to manage our currency reserves in the best interests of the country and thus make investments that retain their real value over the long term. Implementation  So, we pursue two objectives with our investment policy – ensuring the availability of the balance sheet for monetary policy purposes and preserving the value of our currency reserves. Page 4/10  In order to achieve these two objectives, the SNB’s investment policy is guided by a number of criteria. In addition, it has to meet two important requirements. Let’s start with these requirements. First, we cannot hedge currency risks against the Swiss franc. Such hedging transactions would trigger additional demand for Swiss francs, thereby increasing upward pressure on the currency. This would run counter to our current monetary policy, which is geared at reducing pressure on the Swiss franc. Second, in implementing our investment policy, we aim for minimal market impact. This is the fundamental distinction between investment policy and monetary policy. Monetary policy measures are deliberately targeted to change market prices. They are intended to nudge monetary conditions in Switzerland – interest rates or Swiss franc exchange rates – in the desired direction. By contrast, the SNB’s investment activity should not trigger any price changes. For this reason, when investing, we always take into account the absorption capacity of the markets. When restructuring our investments, whether between different investment instruments or between different currencies, we exercise prudence and caution.

7  The 3-month Euribor rate is very close to the 3-month GBP Libor rate (1.28%) but considerably higher than the 3-month USD Libor rate (0.66%) while the 6-month Euribor rate virtually the same with the six-month GBP Libor rate (1.49%). 8  For example, the short-term (i.e. below one year) bank lending rate was 3.52% in March 2009, some 2.5 percentage points below its peak value (6.03%) reached last October. This is still somewhat higher than the corresponding US bank lending rate at 2.04% in March 2009. 9  Of this overall figure of EUR 790 billion, USD 130 billion refer to the writedowns of euro area large and complex banking groups (LCGBs); while USD 49 billion relate to other euro area banks. 10  Of this total amount of USD 192 billion in capital raised, almost USD 155 billion refer to euro area LCBGs while over USD 37 billion have been raised by other euro area banks. 11  See International Monetary Fund (2009). BIS Review 65/2009  5  Independently of the total potential impact of the financial turbulence and the weak economic activity on euro area banks’ net income and capital position, it is evident that they will need to strengthen their balance sheets.
This present economic recovery is taking place in a sound economic environment. Inflation level remains under control even though the balance of risks to price stability has recently gone up: some pressures have resulted from recent oil price rises or may result from some capacity constraints that could be encountered in the course of next years. Needless to say that the Governing Council of the Eurosystem has been and will remain vigilant in order to secure our primary objective of price stability. Besides, the current account is slightly in surplus and fiscal deficits are, in the euro zone as a whole, on a downward trend. It is worth stressing that European economies have never been creating so many new jobs so fast. The past two years (1998 and 1999) have seen very rapid job growth (about +1.5% a year) and a very big decrease in unemployment. In France, the rise has been sharper since almost 900,000 new jobs were created by enterprises (excluding Government administration) from December 1996 to December 1999 i.e. +6.6% over three years. With the economic growth speeding up, we can expect a further drop in the unemployment rate which is presently below 10%. Due to this economic recovery, the growth differential between the US and the euro zone is progressively to disappear. This gap between the two economic zones in terms of economic growth has resulted in the past years from the lag between their economic cycles.

Even if stronger exports were to provide only a partial offset to the restraint from fiscal consolidation, the increase in demand generated by rebalancing  6  BIS Review 28/2010  would reduce the risk that the nascent recoveries might falter. This, in turn, would also reduce the risk of a protectionist backlash. To conclude, the structural case for rebalancing is compelling. The current cyclical circumstances reinforce this case. Thank you very much for your kind attention. I would be happy to take a few questions. BIS Review 28/2010  7
Risk on/risk off is precisely such a popular narrative.4 The effect of popular narratives is to increase psychological contagion in financial markets. Simple stories generate market mood swings. The greater the uncertainty, the more compelling the simple story and the greater the amplitude of these mood swings. These  2  Reinhart and Rogoff (2010). 3  For example, Tversky and Kahneman (1974). 4  For example, Akerlof and Shiller (2009), Tuckett (2011)  4  BIS central bankers’ speeches  swings in turn result in a detachment of risk perceptions, and hence asset prices, from reality. Financial trauma, like personal trauma, can increase this detachment from fundamentals. For those who lived through it, the Great Depression had a lasting effect on financial risk-taking. “Depression Babies” have been shown to seek less risky capital structures and to avoid financial stocks.5 The scarring effects of the Great Depression on risk attitudes help explain the excess premium demanded by equity investors during the previous century.6 The Great Depression left risk-taking scars that lasted a lifetime. The Great Depression has now been lost from most investors’ experience sample. Indeed, that fact might help explain another popular narrative from the past – the Great Moderation. But the Great Depression has recently been replaced in investors’ experience sample by the Great Recession. Whether this will spawn an era of “Recession Babies”, with a permanently lower appetite for financial risk-taking, remains to be seen.

The UK has recently put in place an explicit macro-prudential regime. In July of last year, the UK government announced a new Financial Policy Committee (FPC) to execute macro-prudential policy.7 The FPC is housed in the Bank of England and met for the first time in June this year. The FPC’s objective is to protect and enhance the resilience of the UK financial system against risks including “unsustainable levels of leverage, debt or credit growth”. Therein lies a key FPC challenge. There is evidence of unsustainably high levels of leverage in some sectors. But elsewhere, there is evidence of credit growth being unsustainably low. Some companies remain over-leveraged. Yet others are suffering a credit shortage, with bank lending to companies continuing to contract over the past 12 months. 5  For example, Graham and Narasimhan (2004), Malmendier and Nagel (2011). 6  For example, Cogley and Sargent (2008), Barro (2006). 7  HM Treasury (2010). BIS central bankers’ speeches  5  In framing macro-prudential policy today, both these factors need to be weighed: on the one hand, enhancements to the risk-bearing capacity of the financial system to repair balance sheets; on the other, encouragement for the risk-taking capacity of the system to boost credit supply. These factors can sometimes point in subtly different directions. The first might point to higher buffers to boost banks’ risk-bearing capacity, while the second might point to lower buffers to boost their risk-taking capacity.