samchain/econo-pairs-v1 huggingface dataset:
Executive Director Jan F. Qvigstad will give a more detailed presentation of the characteristic features of periods in price history that do not follow the norm – periods of high inflation and strong deflation. Once a norm has been established, the next question might be: What would the future look like if we make projections on the basis of what we know from history? Two variables of special interest for economists are GDP and consumer prices. One way to make a projection is to extend trends in historical developments. If economists in 1905 had had access to today’s statistical concepts and techniques, they might also have performed exercises such as this. Let us imagine that they did just that, and that they wanted the answer to the following question: What will be the level of prices and real income in Norway when the country’s citizens commemorate the dissolution of the union with Sweden in 2005? From our position in the present, we can say with some certainty that they would have been considerably off the mark. Looking back, it is also easy to understand why. In 1905, prices had remained approximately unchanged for several decades. The krone’s precursor, the speciedaler, and then the krone itself had been pegged to silver and gold standards since 1842. These systems provided a fixed nominal anchor for the economy and for prices. This was also the case for several of our trading partners. From 1875, Norway was also a member of the Scandinavian currency union.

In 1900, about 24 per cent of GDP was generated by manufacturing and other goods production. If the economists of the time had projected developments in these three industries, they would have estimated that primary industries’ share of total GDP would fall to below 5 per cent. Manufacturing and other goods production would increase its share to 30 per cent and service industries to 66 per cent. Value-added in primary industries fell somewhat more than economists in 1905 would have projected and service industries increased somewhat less. They would have been less accurate in their projections for developments in manufacturing. Although manufacturing’s share of total GDP increased up to the beginning of the 1950s, growth in private and public services gradually bypassed manufacturing, and the petroleum sector held an increasingly important position from the 1970s. The expansion of the petroleum sector and the use of petroleum revenues contributed to maintaining high growth in Norway, while other countries experienced a slowdown. Are there lessons to be learned from the pitfalls of projecting or trend-extending economic variables? Lessons to learn First, one lesson to learn is that it very difficult to predict developments in the real economy. If we were to extend the historical growth trend today to predict the future level of income, we would probably also be considerably wide of the mark. Today, we know nothing about the technological innovations that might appear in the future.
The transactions that take place there are the lifeblood of a global economy that comprises many different national currencies. By enabling the transfer of funds and purchasing power from one currency to another, the foreign exchange market offers an important means for price discovery that facilitates international trade and investment activity. The relative value of a currency, expressed in exchange rates, both drives and is driven by the costs of goods, services, and investment opportunities in each economy. Understanding relative prices helps businesses make decisions about the competitiveness of their goods and services, which is important for consumption and production choices. For example, the current and future value of an exchange rate can be an important factor for a corporation when deciding where to locate a new factory or where to source parts, or even where they want to sell their finished products. These decisions ground the composition of activity within  BIS central bankers’ speeches  1  an economy, and have a bearing on the distribution of jobs, investment, and growth across the global economy. This is a particularly important function given trade’s increasing contribution to global growth. Indeed, between 2003 and 2013, the share of trade in global GDP increased by about 11 percentage points, to just over 59 percent. 1 The FX market is a large and growing market.

According to the latest Triennial Central Bank Survey of foreign exchange and derivatives market activity conducted by the Bank for International Settlements (BIS) in April 2013, total global average daily turnover across overthe-counter foreign exchange instruments – including spot, forward, swap, and option transactions – was estimated to be more than $ trillion, an increase of nearly 60 percent since 2007. 2 This trading volume dwarfs the U.S. fixed income market, where average daily turnover at the end of 2013 was about $ billion. 3 Within this large market, a broad range of foreign exchange products is traded each day by a diverse set of market participants for a wide variety of reasons. Derivatives are the largest component of global trading in the FX market, accounting for about 60 percent of turnover in 2013. They play an important role in helping transfer a wide variety of risks from entities that cannot or do not want to bear it to those that can and do – including risks associated with hedging cross-border exposures or positions in other markets, such as fixed income – or to provide a source of funding to help meet liquidity needs. The most actively traded derivative product, foreign-exchange swaps, accounted for about 40 percent of all trading activity in the global FX market in 2013, serving as a critically important cross-currency funding tool for a wide variety of market participants.
The role of the krone exchange rate With the new operational target of monetary policy, Norges Bank will aim to maintain low and stable inflation. We no longer have a specific exchange rate target for the Norwegian krone. Nevertheless, developments in the krone exchange rate are still very important when Norges Bank sets the interest rate. This is due to a number of factors: •  Changes in the krone exchange rate affect prices measured in NOK for imported consumer goods and services. Bearing in mind that imported goods are used in Norwegian production, the rise in prices for imported goods and services combined determines nearly 40 per cent of consumer price inflation. •  Developments in the krone exchange rate have an influence on the earnings of companies that compete with foreign enterprises and that traditionally also negotiate first in the income settlements. •  Changes in the exchange rate affect the competitiveness of Norwegian business and industry as well as demand at home and abroad. Thus, the activity level in the economy is affected. •  As the Norwegian and international money and capital markets become more integrated, changes in the exchange rate will be increasingly important. Changes in the exchange rate generate wealth gains and losses for Norwegian households and companies. 1  See box in Inflation Report 4/2000. ”Effects of a change in interest rates”, December 2000  2  See for example Jan F. Qvigstad. ”Monetary policy in real time”, Working Paper 2001/1, April 2001.

This meant that if the interest rate changed during a maintenance period, the change would not have been fully reflected in the interest payments to depository institutions until the beginning of a new maintenance period. This methodology likely would have resulted in slow adjustment of market rates to changes in the IOER rate. The revised calculation bases interest payments to depository institutions on the IOER rate in effect each day and the level of balances held each day. 20  See Clouse, Ihrig, Klee, and Chen, “The Federal Reserve’s Tools for Policy Normalization in a Preferred Habitat Model of Financial Markets,” October 2014; Martin, McAndrews, Palida, and Skeie, “Federal Reserve Tools for Managing Rates and Reserves,” September 2013; and Armenter and Lester, “Excess Reserves and Monetary Policy Normalization,” September 2015. 21  Testing focused on two types of term operations. Term RRPs are similar to ON RRP in most respects; for example, both operations use the same expanded set of counterparties. The key differences are that term RRPs are conducted for longer than overnight, they each have their own, separate, aggregate capacity limit, and the term RRP does not incorporate a per-counterparty cap. Term RRPs can be used in a variety of ways. In the current framework, they have been used to offer increased RRP capacity, using an interest-rate-oriented approach, around periods when larger-than-usual demand is expected, but they could also be used in a quantityoriented way to drain reserves.
The euro area has moved into a situation characterised by a surge in inflation, the likes of which has not be seen since the early 1980s. This new macroeconomic context implies a change of course of monetary policy. 1. Economic position of the euro area in the cycle As regards the macroeconomic situation of the euro area, let me start with stating the obvious in saying that the economic outlook has deteriorated steadily over the year. Upward revisions to inflation forecasts have been accompanied by downward revisions to growth forecasts. The war in Ukraine and the lockdown in China have fuelled a "slowflationary" shock which is now threatening to morph into a "stagflationary" one. The most recent data point to a substantial slowdown in euro area economic growth. There are several factors explaining this. The negative shock on terms of trade resulting from very high energy prices is reducing the real income of both households and firms. Although supply bottlenecks are easing, they are still constraining economic activity. In addition, the adverse geopolitical situation, especially Russia's unjustified war in Ukraine, is weighing on the confidence of businesses and consumers. As a consequence, the projections for economic growth have been revised downward markedly for the remainder of the current year and throughout 2023. In its September projections, the ECB now expects the economy to grow by 3.1% in 2022, 0.9% in 2023 and 1.9% in 2024, in its baseline scenario.

2/4  BIS - Central bankers' speeches  However, inflation in the euro area is also becoming more 'domestic' and 'broad-based', with the other components of inflation all rising: core inflation (excluding energy and food) is now 4.8% in the euro area (and 3.7% in France) according to the September flash estimates, and the rise in prices is spreading to goods and services - which account for the other half of total inflation. It is this more "domestic" inflation for which the central banks are responsible, and which they must not let get out of hand and persist. This is the critical objective and commitment underlying the action taken by the Governing Council of ECB. Accordingly, their will and capacity to bring inflation down to 2% in the next two to three years in the euro area should not be subject to any doubt what so ever. 2. Implications for monetary policy So, what are the implications of the current situation for monetary policy in the euro area? The fundamental change of the nature of risk to address, clearly implies a normalisation of monetary policy, which means dismantling measures adopted to fight a risk of deflation and a rapid adoption of at least a neutral stance. In terms of ECB key policy interest rates, this translated in a quick return to positive territory, moving towards the so called "neutral rate".
The resolution committees of the failed banks have Central Bank deposits totalling nearly 1 billion euros. Those balances will be paid out in the months and years to come. If they are deducted from the reserves, together with other funds that will likely be withdrawn in the next 12 months, there are 1.4 billion euros left. This is sufficient to cover the instalments that must be paid on the Treasury’s foreign loans in the winter of 2011–2012, which total 1.4 billion euros. But the foreign exchange reserves would then be exhausted, and the situation would be difficult, to say the least. On the other hand, this will not be allowed to happen. In my opinion, if such a situation appears imminent, we must take action according to Plan B, which I discussed earlier. In addition, it is highly likely that we will be successful in realising some of the foreign claims held by Central Bank of Iceland Asset Management. I would like to take this opportunity to announce for the first time that, in recent months, the Central Bank has purchased, on the secondary market, bonds from the series maturing during the winter of 2011–2012. The purchase has a nominal value of 116 million euros and was executed on favourable terms. Because of this transaction, the reserves can now cover the loan payments. Furthermore, it will end up reducing the Treasury’s foreign debt at lower expense than would have been achieved otherwise.

Will access to credit markets be restored in the near future, so that we can strengthen our foreign exchange reserves and begin lifting the capital controls soon, without jeopardising the exchange rate of our currency or worrying about upcoming payments on the Treasury’s foreign loans in the winter of 2011–2012? Or are we faced with a situation where access to foreign credit remains limited and the capital controls must stay in place much longer than we had hoped? It will then become critical to eliminate this uncertainty. If the conclusion is that we must maintain the capital controls longer than originally intended, and if access to further foreign credit is not forthcoming except at usurious rates, we will have to draft an economic policy that takes account of these circumstances. In that instance, strong emphasis would be placed on preventing the nation’s foreign exchange reserves from becoming dangerously depleted following payments on Treasury loans in the winter of 2011– 2012. Fiscal policy would have to be tighter than is currently planned. As regards monetary policy, two factors would tend to offset one another: the economy would be weaker, but the exchange rate would be lower. The more effective the capital controls are, however, the lower interest rates can be. This could also mean that the Central Bank would purchase foreign currency in the market in order to strengthen its reserves in advance of the loan payments, and that, in turn, would mean a lower exchange rate.
It is based on sound principles, such as market-consistent valuation of the balance sheet and a risksensitive approach to determining capital – many of which are embedded within Solvency II. The success of these principles was demonstrated by the resilience of the sector during 2008 But Solvency II moves beyond our current regime. So although there has been no change in our view of the type of risks that firms are exposed to, and we do not intend to use Solvency II to increase the aggregate level of required capital across the industry, this is not the same as saying that the surplus capital positions of individual firms will not change with the arrival of Solvency II. It is a different regime, with a different shape to ICAS. Firms will therefore see movements in their regulatory capital positions. For some firms these positions will be tighter, for others looser. This brings me to the second myth: that we intend to re-create the ICAS regime under the guise of Solvency II. Let me be clear: Solvency II will be the foundation of our supervisory approach and we will fully embrace the change that accompanies it. Although Solvency II BIS central bankers’ speeches  1  incorporates many of the features of ICAS, the shape of the new regime is different. The EU is moving to a harmonised, risk-based, transparent, and “going concern” regime. This means some significant changes to the shape of the balance sheet and our assessment of financial resources.

’9 ’9 7 1  1  0  0 -1  -1 94  95  96  97  98  99  00  01  S ource s: S ta tistics S we de n a n d P rospe ra R e se a rch Diagram 3  Com p on en ts of th e CPI percen tage 12-m on th ch an ge 9  9  I m p o r t ( 24 % )  6  6  D o m e s t i c ( 67 67% %)  3  3  0  0  -3  -3  -6  -6  Ho u s e m o r tg ag e i n t e r e s t c o s t ( 9%)  -9  -9  -12  -12  -15  -15 92  93  94  95  96  97  S o u r c es : S tati s ti c s S w ede n a n d th e R i k s ba n k  BIS Review 56/1997  -5-  Different indicators of underlying inflation also show a declining rate of increase, though the picture measured in this way is not quite as dramatic (Diagram 3). Excluding house mortgage interest costs, the current rate of inflation is about 1 percentage point higher than indicated by the CPI.
Just as the role of a central bank in monetary policy is to take the punch bowl away just as the party gets going, its role in financial stability should be to turn down the music when the dancing gets a little too wild. Still, we should not put all our faith in regulation. It has limits. If the structure of banking creates incentives to take excessive risk then regulators will be overwhelmed by the avarice so vividly captured by Michael Lewis in his book The Big Short. Incentives must be right. One misalignment of incentives today is the implicit guarantee to banks that are “too important to fail”, so that creditors have little incentive to monitor the behaviour of banks because they believe they will be bailed out. This problem is too important to ignore. There is no one simple solution. But we should not shy away from radical reform just because of the opposition of vested interests. So I welcome the setting up of the Banking Commission, with its talented commissioners and a wise and forensic chairman in Sir John Vickers. Let me now return to the quiz question I posed earlier – to what question is 23 the answer? Several plausible answers come to mind. First, 23 is the number of players in England’s World Cup squad in South Africa. Second, it is of course 23 years since England last won the Ashes “down under”.

The actual implementation of the International Financial Reporting Standards is part of the central bank’s area of concerns, since relevant and adequate assessments of credit institutions’ assets, debts and shareholders’ equity are essential prerequisites for the calculation of real prudential indicators. In order to fulfil this objective, the NBR has steadily cooperated with the commercial banks and the Romanian Banking Association and has enjoyed the support of leading consulting and audit firms in Romania. The Institute of Chartered Accountants in England and Wales, an institution famous for its rich experience regarding International Financial Reporting Standards, has recently provided the NBR support to carry on/complete the implementation of financial reporting standards. Today, its experts will present useful information and recommendations to accurately comprehend and implement the International Financial Reporting Standards. Within the process of accounting reform intended for credit institutions in Romania, following the transposition of the EU acquis – given that European standards did not establish any rules –, the NBR has contributed to the enlargement of the European regulatory framework by adopting solutions consistent with the principles of International Financial Reporting Standards. Thus, the implementation of these standards at individual level by credit institutions in Romania has taken a graduated approach. At consolidated level, i.e. banking groups, the International Financial Reporting Standards have been transposed via a seamless approach; the NBR exerted its national options embedded in the acquis, but included all credit institutions, not only the listed ones, in the scope of applicability.
Yes, as in the case of other negative supply shocks: Keeping inflation low and stable must be the overriding objective. And with regard to reducing emissions, keeping inflation low and stable is perhaps even more important, as this will help make changes in relative prices more visible. Concluding remarks Globalisation has so far given us the best of two worlds, high growth and low inflation. But looking ahead there might be challenges to both nominal and financial stability. 16  Kenneth S. Rogoff (2006, see footnote 8). BIS Review 14/2008  7  We must preserve a nominal anchor, even when times may become more difficult. History has shown us that low and stable inflation is the best contribution monetary policy can make to growth and macroeconomic stability. A new, globalised world does not change this paradigm. Financial stability is enhanced by “smart” regulations that provide the right incentives. It is important to encourage innovation and to avoid overregulation. We must expect losses to occur and the losses should be borne by investors and financial institutions themselves to the fullest extent possible. Some might argue that I am behind the curve and that I should rather be discussing the breakdown of the global financial system. George Soros has argued that “This is not a normal crisis, but an end of an era.” 17 I do not subscribe to this view, though I admit I might be proven wrong. I would rather regard the present turmoil as evidence of the self-correcting properties of our system.

Jarle Bergo: Nominal and financial stability in a new economic world Speech by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), Valutaseminaret, Sanderstølen, 1 February 2008. *  *  *  Thank you for inviting me once again to this venerable institution - Valutaseminaret. It is a pleasure to be here with you. This morning I will discuss with you some issues under the broad heading of “Nominal and financial stability in a new economic world”. Introduction The general economic environment has changed dramatically over the past 30-40 years. When I started my career as an economist in the late 1960s, a belief had evolved that the economy could and should be controlled and steered in considerable detail. A widespread view was that markets should be regulated and coordinated by authorities. Furthermore, the Phillips curve was embraced as proof that a long-run trade-off between inflation and unemployment existed. By merely accepting somewhat higher inflation, it was thought possible to reduce unemployment in the medium and long term. The economic policy of the 1970s and 1980s, which was based on these views, led to high and variable inflation and wide fluctuations in the economy. In the face of the disappointing experience from this period and advances in economic theory, put forward by among others the Nobel Prize winners Phelps, Friedman, Kydland and Prescott, views have now changed. We have learned that low and stable inflation is the best contribution monetary policy can make to high and stable growth.