samchain/econo-pairs-v1 huggingface dataset:
Strengthening of the current account position is continuous, with gradual closing of the deficits. Some countries even exhibit surplus, such as the case of Slovenia, Czech Republic, Croatia, Bulgaria and Hungary. Chart 5 Current account  Source: IMF, BOP database  6  The averaged numbers exclude data for Montenegro and Serbia due to the shorter time span of their BOP series. 8  Current account adjustment  Source: IMF, BOP database  Observing the adjustment, through structural lenses, one can notice that the adjustments in the current account, was predominantly driven by the balance of goods and services. The deficit in the balance of goods narrowed from an average of 15.6% of GDP in the 2000-2008 period to 10.6% of GDP, and in the following 2009-2013 sub-period to even lower share of GDP in the last four years of 8.2% of GDP. Additionally, the surpluses in the services shows steady increase, a dynamic that is more visible in economies with more developed tourism sector. While the initial adjustment in the acute phase of the crisis was through compression of imports, what followed afterwards was remarkable shift in export, which kept the trade deficit markedly bellow the pre – crisis level. Hence, in 2018 the average trade balance hovered around 8% of GDP, compared to 17% of GDP before the crisis. Imports is close to its pre-crisis level, while the level of exports surpasses it by close to 10 p.p. of GDP.

Meanwhile, aggregate current account deficits of advanced economies rose slightly, underpinned by renewed fiscal easing in the United States. 3 Chart extracted from the IMF External Sector Report, 2019. 4  Chart 3 Current account and fiscal balances in Euro Area and USA USA  Euro Area  Current account and fiscal balance, as % of GDP  Current account and fiscal balance, as % of GDP 4.0  0.0  2.0  -2.0 -4.0  0.0  -6.0  -2.0  -8.0 -10.0  -6.0  -12.0  -8.0  -14.0  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019  -4.0  Fiscal balance  Fiscal balance  Current account balance  Current account balance  Source: IMF, WEO October 2019, database  The dynamics of the balances is not always indicative on how appropriate the external position is. The deviation of the current account from its fundamentals and desirable policies provides for additional substantial information on the correction needed. According to the IMF (2019), 35–45 percent of overall current account surpluses and deficits were deemed excessive in 2018.
This will make our intentions regarding future monetary policy as clear as they can be. In my opinion, this new way of working reduces the need for signalling prior to the monetary policy meetings. Objections of principle… It is also possible to raise issues of principle regarding when and how one should signal. The signalling has sometimes been a question of wanting to communicate that we have had a slightly different view of how the interest rate should be set at the next meeting than the market has expected. In these situations one can say that we have preferred to prepare the market by signalling a few weeks before a monetary policy meeting rather than to risk surprising them when the decision is announced. But it is not necessarily the case that much can be gained by “fine tuning” expectations over the course of a few weeks. Although this system has meant that we have sometimes been able to avoid strong reactions and indignant comments in connection with the actual interest rate decision, we have nevertheless had roughly the same reactions when we have signalled the probable interest rate decision a few weeks earlier. The question is then what value the signalling has had. …not least because we are several members who must agree Many questions regarding the signalling are connected to the fact that we are a group of persons making interest rate decisions. The Executive Board of the Riksbank is what is usually known as an individualistic committee 8 .

This means, quite simply, that the members act as individuals. This applies both when we are out speaking and when the interest rate is set. The interest rate decisions are made through voting and the members can publicly state whether or not they share the majority view. In the case of so-called collegial committee, there is instead an agreement that the individual members’ views are subordinate to the group’s overall opinion. If there are internal differences of opinion, they  8  See, for example, Blinder, A.S., (2007), "Central Banking by Committee: Why and How?” European Journal of Political Economy 23, 106-123. BIS Review 40/2007  7  are often concealed from the outside world and once a decision has been taken, all of the members officially support it. The combination of making interest rate decisions in a group and signalling between the monetary policy meetings is not entirely problem-free. If we assume, for instance, that an individual member is to hold a speech a few weeks prior to a monetary policy meeting where he or she gives signals that the interest rate should be changed. Regardless of whether or not the Executive Board is an individualistic committee, I believe that sometimes there may be uncertainty as to who is actually sending the signal. Is it merely the individual member who is describing his or her view, or is he or she expressing the majority's opinion?
In other words, the business ‘creation effect’ stimulated by WTO accession will far outweigh the ‘diversion effect’, under which the pessimists had been predicting that Hong Kong’s trade would gradually dry out and shrivel up. To put a figure on it, our estimates within the HKMA suggest that Hong Kong’s annual GDP growth rate will be boosted by somewhere between half to one per cent through the increase in re-export trade resulting from China’s membership of the WTO. 6. But that is not the end of it. For our less visible trade, in financial, technical and professional services, the outlook is even more promising. These lucrative service industries, which are increasingly taking pride of place in Hong Kong’s economy, will be greatly boosted by business from Chinese enterprises seeking to expand their capabilities and improve their governance to handle increased trade and meet foreign competition. They will also be stimulated by overseas investors who need advice on how to make the best of the opportunities on the Mainland and who find Hong Kong the best place at which to obtain that advice. These trends have been in play for a long time – indeed they reflect Hong Kong’s historic role as a hub of commercial, technological and cultural exchange between China and the rest of the world. But there are clear signs that these mediatory and advisory services are now receiving a boost in anticipation of WTO entry, as companies in the Mainland, in Hong Kong and overseas position themselves for new kinds of commercial relationships.

7. How do banking and finance fit into all of this? We expect to see two main developments over the next few years. The first is the greater demand for banking services resulting from the growing volume of business that will follow WTO accession. The second is the financial deepening, stimulated by more rapid financial liberalisation, greater banking competition, and product innovation induced by the terms of WTO accession. These developments will accelerate the reforms already in train within China’s domestic banking sector – reforms that cover the whole spectrum of banking management and services from corporate governance to the professional training of staff. The developments will also progressively open China’s business environment to competition from banks from outside the Mainland. In two years’ time, foreign banks will be able to conduct RMB business with Chinese enterprises in Shanghai, Shenzhen, Tianjin and Dalian. Within five years, they will be able to deal with all Chinese enterprises without any geographical restriction. The advantages for banks with a base in Hong Kong are obvious. Many of them have a head start on the Mainland, with networks of branches and more than a generation of practical experience. They also have all the advantages of geographical proximity, a common language and culture, yet separate financial and legal jurisdictions that Hong Kong’s unique position in China brings. Forty per cent of the Mainland’s trade is routed through Hong Kong. Hong Kong is the Mainland’s largest source of foreign direct investment and China’s main financial conduit and funding centre.
They appear instead to have “skilled-down”, typically by taking a job for which they are over-qualified. They have become not unemployed but “under-employed”. Rates of under-employment have risen and are at significant levels (Table 2). Across the EU, rates of under-employment average around 15%. As in the early 19th century, by adding to the unskilled pool of labour, this will have dampened unskilled wage growth. BIS central bankers’ speeches  7  These switching patterns of employment demand and supply would be expected to show up in wages. UK evidence shows no clear pattern (Salvatori (2015)). But US evidence is more conclusive. It suggests that wages at the top end of the skill spectrum have risen, in some cases significantly. But there is little evidence of that having happened at the lower-skill end (Autor (2015)). In other words, only the higher-skilled appear to have gained in both employment and wage terms. A rising skill premium is consistent with the well-documented widening gap between the top 1% and 0.1% of income earners and the rest over recent years (Piketty (2014), Atkinson (2015)) (Chart 16). In the words of Tyler Cowen Average is Over, with a widening bifurcation between a high-skilled elite and everyone else (Cowen (2013)). By itself, a widening distribution of incomes need not imply any change in labour’s share of national income: in the past, technology’s impact on the labour share appears to have been broadly neutral. But this time could be different.

If you look more closely at the dollar bill, you will find a further inscription which states “This note is legal tender for all debt, public and private”. This imposes an obligation to accept the note in the settlement of contracts and highlights the fact that money derives its value - whether imposed by a legal tender requirement or not - from the willingness of other economic agents to accept it to settle transactions. Each agent will only accept money, if he can be confident that it will in turn be accepted BIS Review 96/2000  2  by other agents in future transactions. Thus money is a social achievement as has long been recognised by economists for example by Menger. Money is a question of trust, its use requires trust and it reflects trust. This is especially true in the case of fiat money, i.e. the use of printed paper - which has no intrinsic worth - as a medium of exchange and as a store of value. Yet even commodity money requires trust and a well-founded expectation that it will be accepted for a wide range of transactions. Milton Friedman, in his book Money Mischief (1992), reports the well-known story of the monetary system of a small island in Micronesia which at the end of the 19th century used stone wheels as a medium of exchange and as a store of wealth.
There is thus hardly any support for low interest rates in themselves causing problems for financial stability or for high interest rates in themselves improving financial stability. 9 The current situation in Sweden is rather that higher policy rates may have a negative effect on financial stability. Swedish banks are now choosing to fund themselves by short-term borrowing in foreign currencies, which is cheaper than borrowing in Sweden as interest rates are higher here than abroad. But this entails some risks as foreign investors are an unstable source of funding (Sveriges Riksbank 2012a). When the policy rate in Sweden is raised in relation to interest rates abroad, it becomes even more attractive for the banks to borrow in  9  Is the United States an exception? Hardly. A very fragile financial sector arose there without resilience, as a result of a lack of regulation, exaggerated confidence in risk management, very excessive leverage, gigantic hidden off-balance sheet liabilities and large information problems with a large spread of uncertain assets. A modest shock in the form of loan losses due to untenable sub-prime mortgages with low-quality credit assessments then led to a major financial crisis. It was not low interest rates that led to this lack of resilience and to these untenable sub-prime loans, and it is difficult to see that higher interest rates would have prevented the crisis. 8  BIS central bankers’ speeches  foreign currency.

In my view, it should only be possible to neglect price stability and highest sustainable employment for a limited period if there are clear signs of problems with financial stability, if there are no means of addressing these problems without setting aside price stability and highest sustainable employment and if it can be credibly demonstrated that another, for example a higher, repo-rate path would lead to better target fulfilment for inflation and unemployment in the longer run. This last condition is important. The government bill that contained the proposal for the Sveriges Riksbank Act states namely that the policy rate may only be used to prevent a financial crisis if such a crisis threatens the price stability objective. In my opinion, there are no clear signs of problems with financial stability at present, there is no lack of means to maintain financial stability and if necessary to limit growth in mortgage  1  Sveriges Riksbank Act 1983:1385 and Government Bill 1997/98:40. BIS central bankers’ speeches  1  lending, and nor is there any theoretical or empirical support for the view that a low policy rate would lead to imbalances in Sweden. If anything, a lower policy rate might instead mean that the banks have less incentive to seek short-term funding in foreign currency and thus the risks linked to this funding will decline. If the Riksbank succeeds in stabilising inflation around the target and unemployment around a sustainable rate, average inflation should be in line with the target over a longer period of time.
It is no easy task to build this type of mechanism into our models, or even the part of the analysis based on assessments. Allow me to alter the time perspective somewhat and assume that a loan-driven bubble in the property market has burst and had serious consequences for the rest of the economy. There are some questions that I would like to be able to give the “right” answer to if I were standing in this situation looking back over the developments leading up to it, perhaps looking back a year. Would we then be able to claim with certainty that our interest rate policy did not contribute to developments becoming unbalanced and getting out of control? Would we be able to say with certainty that we did not suspect that these developments were untenable and that there would soon be a collapse? And would we be able to say with certainty that conducting a slightly stricter monetary policy than was justified by the forecasts had not helped? I consider it essential for the credibility of every central bank to be able to provide good answers to these questions. And for me it is natural to also take into account the type of factor I have now spoken about – that is so difficult to quantify – when I assess what is the best-balanced monetary policy. Other weapons than the interest rate are probably more effective with regard to preventing loan-financed house price bubbles from building up.

In my opinion, a good checklist for a policy-maker on monetary policy issues is what Donald L. Kohn at the Federal Reserve has put forward on several occasions. He considers that three conditions I mentioned earlier must be met before central banks “lean against the wind”. And these are the three arguments I mentioned earlier. The first condition is that it must be possible to identify a bubble sufficiently early and with sufficient certainty. Secondly, the assessment must be that there is a good chance that a slightly higher interest rate will really slow down the untenable developments. Finally, one must count on being able to gain “enough” by preventing a bubble in relation to what a tighter monetary policy might cost in the short term. I believe that most people will agree that these are sound conditions to use as a foundation. However, the views regarding when the conditions are actually met can vary. Professor Kohn’s first condition probably entails the greatest difficulty. Although we are constantly developing our forecasting methods and models and they are becoming increasingly sophisticated, I do not expect that we will be able to reach a stage in the foreseeable future where we can be entirely sure that something we assess as an incipient bubble actually is a bubble. This is largely due to the nature of things, or rather the nature of the bubble.
9 The level of this imputed interest rate is not set by the regulator and  9  Banks generally stipulate that the cost of a residential property, based on an imputed interest rate of 5% plus amortisation and maintenance costs, must not exceed one-third of the borrower’s gross income. When assessing affordability risk for mortgage lending, the SNB likewise bases its calculations on an interest rate of 5%. Page 9/10  varies between banks. However, if this interest rate were to be lowered in the current environment, borrowers, banks and the economy as a whole would face significant risks. It is especially important when assessing affordability and the relevant interest rate to remember that real estate is normally purchased over a long time horizon of several decades. Interest payments for a mortgage will thus be incurred for the duration of this period, in the course of which rates may well be significantly higher than they are today. While a sharp interest rate rise is unlikely in the short term, there is considerable room for a substantial upward correction in the medium term. It is worth bearing in mind that long-term interest rates are currently about 300 basis points below what was considered normal during the pre2008 era. It is thus vital that borrowers and banks do not exclude the possibility of a sharp interest rate rise in the medium term and, that they ensure their ability to cope should such a scenario come to pass.

Thus instead of re-slicing the pie more focus is needed on ensuring that the pie gets bigger and more inclusive, which will lead to less unhappiness in all the dimensions that it might appear. I truly hope that in a not so distant future, we will be witnessing moderation in the income gaps, more prosperous and less unequal societies. This requires commitment, willingness and vision by all policymakers. Somehow, it seems appropriate to end as I began, with Tolstoy quotation: “Тhere is only one time that is important— Now! It is the most important time because it is the 2/3  BIS central bankers' speeches  only time when we have any power”. And we, as policymakers, exactly Now have not only power, but also a duty to act for a better wellbeing in our societies. Thank you. 3/3  BIS central bankers' speeches
BIS central bankers’ speeches  5  Concluding observations In conclusion I would note that the financial crisis highlighted that financial institutions did not have the quality or quantity of capital they needed. In particular, the broader measures of capital were largely ignored during the crisis by many investors as they worried about the “core” capital immediately available to absorb losses. Thus the emphasis in Basel III on improving the quality and quantity of capital is an important regulatory response to the financial crisis. Clearly we need to focus on the narrow definitions of capital – that which can readily absorb losses. The United States has also improved its supervision framework based on lessons learned during the crisis. One of the major additions to the supervisory “toolkit” was the use of stress tests – in the SCAP and then as an important component of the broader CCAR exercise. The supervisory and regulatory responses have provided strong encouragement for U.S. financial institutions to improve their capital ratios, particularly those ratios most appropriate for absorbing losses during stressful economic periods. Through retention of earnings, asset sales, and new equity issuances, U.S. banks have substantially improved their capital ratios since the crisis period. The severe disruptions and economic dislocations that occurred during the financial crisis – affecting not just institutions, but individuals throughout the national and global economy – highlight the critical need to maintain a well-capitalized and resilient financial sector.

With a low interest rate, households may save less and the turnaround may occur more rapidly than we assume. This indicates in isolation that changes in the interest rate should be gradual or that further interest rate cuts should be put on hold. Overall, the outlook and balance of risks suggest that the key policy rate should be gradually reduced further to a level of around 1 per cent in the second half of 2009. This is about one percentage point lower than in Norges Bank’s forecast from 17 December last year. With the low interest rate added to the government fiscal measures, our analysis indicates that growth in the economy will be positive from the second half of this year. Growth will be driven by a rise in private consumption as a result of a low key policy rate, growth in real wages and higher government transfers. Activity in the economy will be underpinned by strong growth in government spending. The projections are based on the assumption that Norges Bank’s interest rate changes will translate into lower lending rates for households and businesses. At the same time, tighter credit standards in banks are making monetary policy somewhat less effective than normal. BIS Review 37/2009  11  Inflation is projected to fall below 2 per cent in 2010, before gradually moving up towards the target towards the end of the projection period as the output gap gradually closes.