samchain/econo-pairs-v1 huggingface dataset:
However, since the introduction of the inflation target in March 2001, the average correlation has been about zero. This is a remarkable result and may indicate that the Petroleum Fund has shielded the nominal exchange rate from movements in oil prices. Therefore, there is cause for some optimism regarding the possibilities of isolating the mainland economy from variable oil prices in the short and medium run. In the long run, however, we cannot insulate the real exchange rate from developments in the petroleum sector or the use of petroleum revenues. I will return to this later. An increase in oil prices may nevertheless generate expectations of increased petroleum revenue spending ahead, particularly if high oil prices are assumed to persist. Such expectations may exert appreciation pressures on the krone. The chart shows that future oil prices 6-7 years ahead have increased more than spot prices since January 2004. This sharp rise may help to explain some of the appreciation over the past year. In addition, there may be expectations that developments will be more favourable in the Norwegian stock market than in foreign markets when oil prices rise. This may also have contributed to strengthening the krone. However, when estimating the future value of the Petroleum Fund, the expected decline in the level of production on the Norwegian continental shelf should also be taken into account. In addition, there has been a tendency lately to overestimate production when looking a few years ahead.

The Storting (Norwegian parliament) has approved a fiscal guideline for the use of petroleum revenues. It states that, in general, petroleum revenue spending shall be limited to 4 per cent, or the expected annual real return on the Petroleum Fund over time. This fiscal rule shall ensure that the use of revenues in the Norwegian economy is at a level that can be sustained over time. The usefulness of a fiscal guideline is that it gives weight to long-term considerations when addressing day-to-day economic policy challenges. The fiscal rule stabilises enterprises’ expectations concerning competitiveness and the krone exchange rate, thus preventing abrupt and pronounced swings in the structure of the economy. If the government authorities disregard the rule, enterprises will lose an important reference. A policy rule can make matters worse if economic agents have drawn up longterm plans on a faulty basis. The fiscal rule for the budget states that the government can use 4 per cent of the Fund over time. This year, around 6 per cent of the Fund is being used. The deviation partly reflects an unexpected shortfall in tax revenues from the non-oil economy in recent years. The government budget deficit is the difference between total revenues and total expenditure. They each account for about half of total GDP in Norway. Even small deviations from expenditure and revenue projections can have a major impact on the deficit. Exchange rate changes will also lead to fluctuations in the value of the Petroleum Fund.
This cannot go on for ever, and if there is a sudden turnaround it could have substantial negative effects on the real economy. This applies in particular if a situation were to arise where house prices fall and households’ net wealth shrinks. Once households have reached a situation where they consider that they need to consolidate their balance sheets by reducing their debts, it is difficult to break off this process with the aid of monetary policy. This can be clearly seen in the United States right now, for instance. I do not believe in a wait-and-see strategy that could mean that the repo rate needs to be raised even faster further ahead. A slightly higher interest rate now could make households begin to adjust and contribute to a more subdued development. To me, this is a wellbalanced monetary policy. This is fairly self-evident, but let me nevertheless emphasise: My aim is of course as always to try to attain the Riksbank’s objectives – that inflation and inflation expectations should be firmly anchored around the target and that developments in the real economy should be stable. But to achieve this, I would like to take into account risks that I perceive exist and to put them in a slightly longer perspective than the usual forecast horizon – as I currently see good reason to do this.

If inflation undershoots the target at the same time as resource utilization is lower than normal, should it not be possible to keep the repo rate lower and thus have inflation closer to the target during the forecast period and more quickly return resource utilisation to a normal level? As I have described, I think there are fairly convincing reasons for the repo rate path described in the September Monetary Policy Update. The Swedish economy is strong and to attain the target a couple of years ahead we need only to start easing up on the accelerator. Because this is exactly what we are doing. The repo rate is being raised from an extremely low level and the repo rate path implies that we will have a negative real interest rate for a good time to come. This cannot be regarded as a contractionary policy – we are not slamming on the brakes. I have expressed some concern at recent meetings over what a lower repo rate path might entail. One view that I have put forward on several occasions is that monetary policy must manage risk. In this context it may be important not to treat the forecast period as separate and independent, but to try to take into account how decisions made now might affect developments beyond the forecast horizon. Of course it becomes more difficult to comment with any great certainty on what will happen the further ahead one tries to look.
However, the balance of risks is complex. The Norwegian economy still features high capacity utilisation. The rate of increase in consumer prices was slower than expected in July, at a year-on-year rate of 2.7 per cent. Measured from June, the total index fell by 1.4 per cent. The decline, however, primarily reflects the decrease in excise duties, notably the reduction in VAT on food and petrol taxes. Excluding changes in excise duties and energy prices, the rate of increase in prices, as calculated by Norges Bank, was about 2.6 per cent. At the same time, there is a shortage of labour and labour costs are rising at a fairly rapid pace. The rise in service prices where wages are a dominant factor moved up from 6.3 per cent in June to 6.9 per cent in July. Credit growth is also high and growth in household loan demand is still on the rise. Against this background, there is a risk that domestic pressures may translate into stronger inflationary impulses than we have projected. On the other hand, growth in the world economy has slowed markedly, with the risk of even slower growth and a longer recession. Around the beginning of the year, most forecasters expected that the slowdown in the US economy would be relatively short and that the effects on the rest of the world would be limited. This picture has now changed.

At a US Congressional hearing, Peter Fisher of the Federal Reserve qualified the interventions as successful because they had contributed to improving market psychology and reducing the implied volatility in the options market. Sveriges Riksbank intervened in the foreign exchange market in June with the aim of strengthening the Swedish krona. The Riksbank found that the Swedish krona was weaker than implied by fundamentals. This was followed by an increase in interest rates. The Bank of England has seldom intervened in the exchange market after the UK left the ERM in 1992. The currency crisis in 1992 appears to have reduced their faith in interventions as an instrument. However, the Bank of England has made it clear that interventions remain an instrument at their disposal. Canada has had a floating exchange rate for 30 years, and has used intervention operations actively in the 1970s, 1980s and 1990s. However, in 1997 the Canadian central bank was not able to prevent the depreciation of the Canadian dollar, and since then has not intervened. Australia still uses interventions, and the Reserve Bank of Australia maintains that they have benefited substantially from their intervention operations during the period with a floating exchange rate. New Zealand has not intervened after introducing an inflation target in 1990. An evaluation report on monetary policy in New Zealand, written by Professor Lars E. O. Svensson, supports the Reserve Bank of New Zealand's assessment that interventions would hardly have made a significant contribution to increasing stability in New Zealand's economy in 4 recent years.
Put differently, there is the risk that the deterioration in pricing behavior might spread to other sectors of the economy. This situation necessitates a measured, gradual and predictable phase of monetary tightening. The measured and gradual nature of monetary tightening is important in face of an already moderating economic growth while having a monetary tightening that is predictable is important to prevent undesired fluctuations in financial markets. 6  BIS Review 82/2008  Dear Guests, I would like to stress once more. Macro-economic stability is one of the key inputs of sustainable economic growth. Macro-economic stability cannot co-exist with high inflation. Countries that concede higher inflation for the pursuit of economic growth in the short-term are bound to be deprived of both in the medium-term. Policies to attain price stability will entail a cost in the short-term. We need to pay this cost to achieve price stability and ensure sustainable and high growth rates. If we hesitate today and step back from our ultimate target of price stability, we will still face similar problems in the near future, but possibly in worse circumstances. In conclusion, disinflation in Turkey is an on-going process. The disinflation process was disrupted over the past two years due to the extraordinary effects of supply side shocks and inflation targets were overshot considerably. In this environment, the Central Bank of Turkey has made necessary assessments and reacted accordingly. Within the framework of the monetary policy adopted recently, the target has been revised.

The Bank also has a role in developing the financial system to promote growth. I would like you to follow me now through the details of our role on growth and hope to leave you with more confidence that Thailand is in good policy-makers’ hands. My talk today will cover three areas. Firstly, I would like to share Bank of Thailand’s views on Thailand’s current growth potential. Secondly, I would like to walk you through the current economic conditions and illuminate the role of central bank in returning balance in these situations. And thirdly, I will address the classical yet very current challenge of lifting growth through boosting productivity. I will share with you the opportunities we see for Thailand, involving the structural changes that are now underway, and the cooperation by the central bank, public and private sectors that will transform these opportunities into sustainable long-term growth. Ladies and Gentlemen, Having outlined our plan for today, I would like to begin with the concept of growth potential and its application to the state of Thailand’s economy. What do we expect to see from a Thai economy achieving true growth potential? Two components. First is growth at full sustainable capacity. We would expect to see factories producing their optimum output while hotels have the maximum number of guests that can be served comfortably, and infrastructure from roads to banking system able to lend full support. Second is lifting the long-run growth trend.
Thus, now more-than-ever, macro-surveillance process, early warning models, stresstesting, ever more vigilant risk-based supervision, and strong internal risk management by financial institutions will be instruments crucial for safeguarding our financial stability. In closing this introduction, I am certain that this seminar will be extremely useful and provide an important opportunity for building a close network amongst supervisors in SEACEN, as well as for fostering a closer cooperation between regulators in our region and the US-OCC. So, without further ado, let me declare the second SEACEN-OCC Advanced Seminar on Quantitative Techniques for Macro Surveillance and Determining Resilience of the Banking Sector open, and wish you all every success in this seminar, as well as in your career, and have a pleasant stay in Thailand. Thank you. 2  BIS Review 98/2007

In Thailand, there is an acute problem of skill mismatch; that is, skills produced through formal schooling are found to be different from those which firms find useful. Ladies and Gentlemen, Japan’s direct investment here has contributed to skill improvement for Thai businesses and workforce, mostly through learning by doing, training and other knowledge transfers. But beyond that, to reduce mismatch in demand and production of skills, Japanese firms can play a direct and beneficial role. The solution is to break down the barrier between work and school early on. Firms can get involved in training vocational students while potential workers can get a glimpse of what’s really needed out there in the real world. If done well, I think it gives incentive for firms to invest in training these students because it gives them the opportunity to identify and select the best workers before they enter the workforce. To the students, there are potential gains as an incentive as well. With the opportunity to be trained by the best and getting to know its corporate culture first-hand, student trainees are more likely to compete for limited hires by improving their performance. This sort of apprenticeship program has long been practiced in Germany, and has been shown to reduce skill mismatch in the workplace as well as improve firms’ profitability. Practiced here, it could also reinforce mutual understanding between Thai workers and the ways Japanese firms do business. That said, human capital development takes vast and continuous effort over a long period of time.
BIS central bankers’ speeches  7  GDP growth in the euro area are to some extent counteracted by the good development of the economies in the United States, the United Kingdom and China. In the United States, GDP grew rapidly during the second quarter, and labour market data indicate that developments will remain strong. Prior to the next monetary policy meeting, we will of course continue to monitor developments in Russia and Ukraine, and we will analyse what they may mean for economic prospects abroad. With regard to developments in Sweden, GDP growth was somewhat weaker during the second quarter than we were expecting in July. Household consumption and housing investment remained strong, while exports remained weak. The indicators we have received regarding growth give slightly mixed signals. The business tendency survey, which summarises the situation for the Swedish economy, fell somewhat in July. On the other hand, the purchasing managers’ index for the services sector for the same month increased substantially. One can also note that the outcomes for unemployment received for June and July on the whole have been somewhat lower than the July forecast. The inflation figures for June and July show that both the CPI and the CPIF increased somewhat faster than the forecast in July. As you may note, the information received since the monetary policy in July tends to point in different directions, and it is too early yet to say how monetary policy will be affected.

This exceptional intervention was necessary because AIG had engaged in the highly risky business of selling credit protection over the past few years, which left it vulnerable and very exposed to a turnaround in the US housing market. The uncertainty stemming from this situation gave rise to the risk of a domino effect, affecting one financial institution after the next. Fears that this effect could be fuelled by price manipulations and speculation resulted in a restriction of short selling, first in the United States and then in many other countries including France, the United Kingdom, Belgium, the Netherlands, Italy, Germany, Austria and Australia. It was against this backdrop that the idea of an "overall solution" emerged, marking a change in strategy compared to the case-by-case approach that had prevailed until then. This was the underlying rationale for the Paulson Plan adopted on 3 October. Three remarks on the latter: •  The general idea behind the Plan is for the Treasury to purchase currently illiquid assets. It aims to rid banks of the bad assets weighing on their balance sheets, and to eliminate uncertainty about their real value and, in turn, about that of the banks themselves. Indeed, under the current accounting framework, these assets are marked to market, which means that any uncertainty about their value affects that of the financial institutions themselves. •  The way in which the Plan is to be implemented still remains vague. One essential aspect is the price at which assets are to be purchased.
In contrast, a little inflation “greases the wheels” of the economy, helping it to absorb shocks. One example of that is in the labour market, where workers usually resist reductions in their cash wages when economic conditions deteriorate. This behaviour can prevent the inflationadjusted value of wages from declining when demand for labour is weak, leading to  2  The volatility of inflation fell by around four-fifths in the Inflation Targeting (IT) era compared to the pre-IT era. The volatility of real GDP growth fell by around one-quarter. See also King, M (2007), “The MPC ten years on”. 3  The UK’s CPI inflation rate of 0.3% is accompanied by PCE inflation of 0.2% in the US and HICP inflation of – 0.3% in the euro area. 2  BIS central bankers’ speeches  unemployment. If that is the case, it may be better for the economy as a whole if firms’ real labour costs can adjust over time through increases in prices – a little inflation – instead.4 A positive average inflation rate also gives monetary policy space to respond to negative shocks by cutting interest rates. That’s because in normal times the “equilibrium” level of interest rates at which the economy would tend to settle without generating inflation reflects, broadly, the rate of underlying growth in the economy plus the inflation target. The lower is average inflation, the less scope there would be for monetary policy to reduce interest rates in response to shocks before they approach zero.

Commercial paper rates in the market were high and the issuers wanted to extend the maturity of their obligations. But since that time, purchases have slowed sharply. Following the introduction of the CPFF, commercial paper rates in the marketplace dropped below the rates charged by the CPFF. As a result, issuance into the program has collapsed because many issuers can now raise funds more cheaply in the private market. About half of the maturing paper in the CPFF has not been rolled over. As a result, the amount of CPFF holdings, which peaked at around $ billion in mid-January, has fallen by over $ billion, to below $ billion. To date at least, the CPFF has worked as planned and has been very successful in rehabilitating the commercial paper market. Second, the Term Asset-Backed Security Loan Facility or TALF will provide balance sheet capacity directly to investors beyond the banking and dealer community. This program is designed to restart the securitization markets. The TALF is being rolled out in two stages. In the first stage, which I’ll call TALF Version 1.0, the Federal Reserve will provide non-recourse loans to investors against AAA-rated consumer asset-backed securities collateral. Primary dealers will serve as the contact point with these investors to make it easier for the Fed to interface with potentially hundreds of investors. The AAA-rated securities eligible as collateral for this non-recourse lending program are used to fund a wide variety of consumer and business loans, including student , credit card, auto and small business administration loans.
Thus, if the monetary base is growing rapidly, as it has been over the past year with the growth in the Fed’s balance sheet, the argument is that this growth will ultimately lead to inflation. This concern is not well founded because the Federal Reserve now has the ability to pay interest on excess reserves (IOER), and this tool allows us to prevent excess reserves from leading to excessive credit creation. It works as follows. Because the Federal Reserve is the safest of counterparties, the IOER rate effectively becomes the risk-free rate. By raising that rate, the Federal Reserve raises the cost of credit because banks will not lend at rates below the IOER when they can instead hold these excess reserves on deposit with the Fed. Because banks no longer seek to lend out their excess reserves, there is no increase in the amount of credit outstanding, no increase in economic activity and no risk that excessive credit creation will fuel an inflationary spiral. In the event that the ability to pay interest on excess reserves for any reason proved insufficient or the excess reserves themselves had unanticipated side effects that the Fed wished to mitigate, we are developing a number of tools that can be used to drain reserves. Two such tools are large reverse repos with dealers and other investors and term deposit facilities for banks. Finally, the Federal Reserve could always drain reserves the old-fashioned way, by selling assets.

The vast bulk of the Fed’s portfolio is highly liquid – currently we hold $ billion of Treasury securities, $ billion of agency mortgage-backed securities, and $ billion of agency debt against about $ billion of excess reserves. All the excess reserves could be mopped up by asset sales alone if that proved necessary. The Federal Reserve has been very aggressive in responding to the financial crisis. We have rolled out numerous new liquidity facilities and have engaged in lending activity under Section 13(3) of the Federal Reserve Act for the first time since the Great Depression. These actions have been successful in mitigating the risks of financial collapse and a more severe  4  BIS Review 122/2009  contraction in economic activity. The financial system is now healthier and the economy is recovering. But despite these successes, we need to be clear that what has happened to our financial system and the economy is wholly unsatisfactory, and that a broad range of regulatory policies and practices need to be recalibrated to address the shortcomings of our financial system. With inflation low and long-run inflation expectations stable, and our ability to remove monetary accommodation in a timely manner intact, our near-term focus should be to keep significant monetary accommodation in place for an extended period in order to achieve our dual objectives of maximum employment and stable prices. Thank you for your kind attention. I would be very happy to take a few questions. BIS Review 122/2009  5