samchain/econo-pairs-v1 huggingface dataset:
Funds have been BIS Review 91/1997  -6-  attracted back to the US markets which at the same time strengthened the US dollar, adding to the momentum of that flow. It was a pure case of risk versus return. 27. In addition, growing competition at the low-wage end of industries came from other Asian and non-Asian economies. In Europe, cheaper production came from the restructuring economies of Eastern Europe. Competition came from the revival of Latin American economies with improved access to the US market through NAFTA. In Asia, India and China are emerging as major exporters. As a result, exports in Asia suffered a downturn, while imports continued to rise, leading to growing levels of current account deficits. 28. Then came problems on the exchange rate front. The volatility of key exchange rates, particularly that of the yen against the US dollar, has placed the balance of payments of some Asian economies under considerable stress. For instance, since most Asian currencies are explicitly or implicitly linked to the US dollar, the appreciation of the US dollar severely squeezed the exporters, who have to compete with their rivals in Japan and the emerging economies in other parts of the world. The weakness of the yen revived Japanese exports, placing Japan in direct competition with its major trading partners in Asia, as the cheaper yen stimulated exports of Japanese durable goods and capital goods to Asia, while reducing imports from the region.

V.  Safety nets: crisis resolution  In free market economy, no policy and no supervision can prevent the possibility of financial distress in any particular financial institution. What the public policy can do is to minimize the likelihood of systemic crisis. Crisis resolution is the key to avoid systemic disturbance. As we know, the ultimate policy choice for the authorities is to find the balance between the public sector and private sector solution from the one hand and between the pre-determined schedule and ad hoc approach from the other hand. Estonia's currency board regime sets for Bank of Estonia clear and strict limits that exclude several options available for the authorities in many other countries. By limiting the money supply to net foreign assets of the central bank, the room for emergency liquidity support is very limited. Therefore, in our case, the private sector solution is preferable and particular modalities of crisis resolution will depend very much on the circumstances. At this point, I would like to refer back to previous parts of my speech and underline that this particular approach rests upon a few strong fundamentals. Continuous analysis of financial system developments and early warning indicators, importance of strong owners and sound risk management in banks, high liquidity and capital requirements – these basic principles are a necessity for us. By combining the principles just mentioned, we can now describe a few hypothetical crisis resolution situations in Estonian financial system.
It is up to users to decide whether to use these indicators or not. I assure you that experts from the Bank of Albania will stand by the users, making them wellinformed, highlighting that further improvements will be made in this area. Thank you for your attention! 2  BIS Review 36/2009

This suggests that the Monetary Policy Committee did not explain well enough that sometimes it is better to raise rates now so as to avoid a much larger rate increase later on. In view of this criticism, I think it appropriate to explain this more fully. In general, Central Bank attempts to keep interest rates as low as possible — but as high as necessary — at any given time. What that optimum level is, however, depends on conditions, and it changes from one time to another. If Central Bank rates deviate from this optimum, the public will bear the expense. If they are higher than need be, inflation could fall below target and GDP growth would be weaker than it might be otherwise. If they are lower than need be, inflation could get out of hand and economic instability could take root. In that case, a much larger rate hike would be needed later on. So interest rates that are too high or too low do not come without costs to the general public. In this instance, it should not be forgotten that household mortgages tend to be long-term loans, and a majority of them are indexed to the CPI. If inflation is kept at target over the long term, these mortgage rates will be lower in the long run than they would be otherwise, even though an increase in short-term central bank rates might sometimes be required.
These shocks led to a temporary imbalance of the demand and supply for foreign currency and contributed to creating expectations for further appreciation of the exchange rate, and were accompanied also by a change in the behaviour of certain operators in the economy. They initiated a fast appreciation spiral in the second quarter and were accompanied by a disorder of the functioning of the domestic foreign exchange market. Under these circumstances, the Supervisory Council judged that the rapid appreciation of the exchange rate jeopardised the achievement of our inflation target in the medium-term horizon. Consequently, in full compliance with the price stability objective and without affecting the free exchange rate regime, in June the Council decided: To lower the policy rate from 1.25% to 1.00%. In parallel, overnight loan and overnight deposit rates were also reduced; and, To initiate a foreign currency purchasing programme, aimed at decelerating the pace of exchange rate appreciation and creating the premises for a normal trading activity in the domestic foreign currency market. Lowering the policy rate was aimed at further reducing the costs of financing and mitigating appreciation pressures on the exchange rate. The intervention in the domestic foreign exchange market, as a temporary and extraordinary instrument of the monetary policy, was considered as necessary under the conditions when the space for further lowering the policy rate was limited. Interventions in the foreign exchange market were concentrated in the summer months.

Thus, we have made progress with regard to improving statistics; research; compliance with EU integration criteria, strengthening 1/8  BIS central bankers' speeches  the governance; and in many other aspects. Lastly, I would like to underline that the Bank of Albania has fulfilled all the recommendations left by the Assembly. The Annual Report presents in greater detail the activity of the Bank of Albania in 2018, across all the dimensions of its activity. I will present first an overview of the activity of the Supervisory Council, the decision-making body, which also monitors the activity of the Bank of Albania. I will then continue to present the activity of the Bank of Albania, in accordance with the main domains of its activity. ***  Activity of the Supervisory Council The Supervisory Council exercises its powers in accordance with the provisions of the organic law and the procedures established in the internal regulation on its organisation and functioning. In 2018, the Supervisory Council met 15 times and approved 76 decisions, of which 55 were acts approved for the first time and 21 were amendments to existing acts. These decisions affect the activity of the Bank of Albania across the board.
Rather than appeal to the stately Duchess of York on which my predecessor sailed, I will look to the trusty canoe – a craft that can navigate the most rapid and treacherous waters…provided its paddlers work in sync. Those economic currents are flowing swiftly, with the economy expanding at an annualised rate of 4% and jobs growing at a record pace.2 But there are rapids ahead, with old imbalances persisting and new ones emerging. The economy is still over-levered. The housing market is showing the potential to overheat. And the current account deficit is now at a record level. Navigating these hazards requires close coordination between all those in the boat; that is, between fiscal, monetary and prudential authorities. Tonight I want to explain the Bank’s contribution to delivering a durable expansion characterised by balance in the macroeconomy, the housing market, and the financial sector. Before doing so, I would like to join the Chancellor in paying tribute to two individuals. The first is Sir David Lees, who as Chairman of Court has overseen the transformation of the governance and responsibilities of the Bank. David, I am extremely grateful for your support during my first year as Governor. I’m also enormously grateful for the wise counsel of Charlie Bean during the past year. Always working, Charlie is tonight discharging his duties as President of the Royal Economic Society. Throughout his career, at the Treasury, in academia and at the Bank, Charlie has been a leading thinker and practitioner in the pursuit of macroeconomic balance.

Excessive reliance on consumption or non-tradable sectors, such as housing, all financed by borrowing abroad at an overvalued exchange rate would prove only temporarily satisfying. The UK’s current account deficit is at a record level. The perennial trade deficit has been reinforced by the fact that the UK is growing much faster than its main trading partners. More  3  In May 2013, the MPC projected annual growth of 1.7% for 2014Q1, only half of the rate at which it now estimates the economy to have grown over that period. Meanwhile the 2014Q1 outturn for unemployment, at 6.8%, was some 0.8ppt below the MPC’s May 2013 central projection. Despite these upward surprises to activity, annual earnings growth in 2014Q1 was 0.5ppt weaker than expected in May last year. That contributed to annual unit wage costs growth around 1ppt below the MPC’s May 2013 central projection. 4  Private non-financial sector debt is 163% of GDP. Around two thirds of bank loans to individuals and more than half of loans to businesses are at variable interest rates. BIS central bankers’ speeches  3  recently the sharp fall in the returns we earn on our investments abroad has led to a negative 3% swing in our net investment income. This is not an immediate cause for alarm. As the world and particularly Europe recovers, demand for our products and returns on our investments should increase.
The upfront announcement of the policy targets indicates the transparency of monetary policy operations and we believe that it helps to enhance policy effectiveness. More importantly, it helps the other stakeholders to fall in line with the announced strategy. 2. Government  The fiscal policy should support monetary policy to work effectively. Therefore, government’s commitment to maintain fiscal targets is essential. According to the government’s medium term macro framework enunciated in the fiscal management report 2007, the overall deficit in 2007 will be contained at around 7.2% of GDP. The Govt. has taken significant steps to enhance revenue through additional measures such as improvement to tax administration, rationalize current expenditure and improve its debt management policy. The achievement of the first quarter 2007 revenue target is commendable. While maintaining the momentum in revenue targets, it is also necessary to reduce Govt. expenditure and work in tandem with monetary policy to contain inflation. In reducing government expenditure, it is also desirable to link income policies of the Govt., in particular, wage increases to productivity gains. Attempts are made to minimize income expenditure gaps and avoid deficit financing from inflationary sources such as bank financing, in particular, borrowing from CBSL. Govt.’s medium term strategy rests largely on public investments in key sectors and infrastructure that supports growth. It is important that these investments are financed in such way that it would not place excess burden on the budget. In this regard, it is encouraging to note that the Govt.

2  BIS Review 55/2007  4. Fund managers/dealers/traders  Interbank market The tight monetary policy stance adopted by CBSL and its possible continuation would result in increased reliance by banks on the inter-bank call market. Given the self imposed limits by banks on lending to each other, if a few banks attempt to raise a large volume of funds from the inter-bank market , there could be volatility in interest rates. Banks should not often rely on a potentially volatile call money market as an alternative to mobilizing deposits or exploring other funding sources. The heavy reliance by some banks on the call money market drives short term interest rates and make borrowing costs to investors and business community to very high levels. The volatility in the call market also creates uncertainty among the businesses and that adds to inflationary expectations. Forex market Given the current account imbalances, there is a mismatch in foreign exchange inflows and outflows. Sri Lanka’s foreign exchange market is not deep enough to absorb relatively large transactions, though its size and operations have gradually increased. In such a market, huge speculative trades could be rather disturbing and they could move the exchange rate against economic fundamentals. No doubt, forex market is a key source of foreign exchange income to banks. Its price, which is the exchange rate, is determined according to demand and supply forces.
This means that they have two key effects. First, they lift the path of potential output, either by raising the inputs to production – the supply and quality of labour and the amount of capital per worker – or by ensuring that those inputs are used more efficiently, i.e. by raising total factor productivity (TFP). And second, they make economies more resilient to economic shocks by facilitating price and wage flexibility and the swift reallocation of resources within and across sectors. These two effects are complementary. An economy that rebounds faster after a shock is an economy that grows more over time, as it suffers from lower hysteresis effects. And the same structural reforms will often increase both short-term flexibility and long-term growth. For example, reforms aimed at encouraging reallocation will not only support faster adjustment, but also higher productivity through raising allocative efficiency. 1 Reforms aimed at strengthening competition will not just encourage greater price flexibility, but also higher investment as young firms are able to enter new markets and expand more quickly. 2 A comprehensive package of structural reforms will therefore tend to increase both resilience and growth. These are clearly issues in which any central bank has a keen interest. But this is especially true for the central bank of a monetary union – and even more so in the conditions we face today. Let me explain why.

Others talk about a new debt bubble of uncollateralized loans provided to ill-prepared students who are unlikely to see any real returns to their investments, calling for better oversight and underwriting of loans. Yet others point to the persistent high returns to a college education and argue that the current situation represents primarily a repayment crisis rather than a debt crisis. In my view, all these policy ideas deserve serious consideration. Some scholars argue that the current system turns reasonable levels of debt into crippling payment burdens that can prevent young workers from attaining financial independence and stability. 3 They propose a single, simpler, income-based repayment system. Such a program would undoubtedly benefit many borrowers, allowing them to better smooth consumption. However, the very low cohort repayment rates we see, even ten years after entering repayment, suggest that realized labor market returns to these higher education investments appear to be lower than one would expect. While these returns may gradually increase as the labor market improves, for some the returns may in fact stay low, especially among college dropouts and those who attended some for-profit institutions. Even if the average returns to a college education remain large, or even grow, students generally have a larger amount of debt to pay off. As mentioned earlier, in response to  3  6  Dynarski, Susan and Daniel Kreisman, 2013. “Loans for Edicational Opportunity: Making Borrowing Work for Today’s Students,” Hamilton Project Working Paper, October.
It has been tempting for many to take up this type of loan for home purchases even with a poor debt-servicing capacity. These borrowers were banking on a rise in house prices that would allow them to service the loans once interest payments increased and principal payments fell due. Securities were developed around these loan portfolios. A large number of risk-prone investors who were seeking high returns – and with a similar belief that a continued rise in house prices would secure the collateral values – made it easy to find buyers for these securities. Weak developments in house prices towards the end of 2006 and into 2007 led to rising defaults on subprime mortgages. This resulted in a sharp increase in credit spreads for securities backed by this type of loans. Into spring and the early part of summer, a succession of news releases reported large losses and collapses in funds that had specialised in these investments. It was not primarily the size of the actual losses that led to the collapse of the funds, but a shortage of liquidity. The news of mounting losses prompted a sell-off by investors in these funds. As a result of increased losses and sell-offs, the funds had to sell other, more solid securities in a weak market, which made the losses visible and reinforced the exit of depositors and other creditors. The unfolding of events became increasingly redolent of a classic bank run. The turbulence spread during summer.

Given the inflation target, we will be mindful of the effects of higher interest rates on the krone exchange rate when inflation is low. Nonetheless, the interest rate path published in Monetary Policy Report 1/07 was higher than in Inflation Report 3/06. The reason for this is that the prospect of stronger-than-expected growth in both Norway and among our trading partners pointed to a higher interest rate path. On balance, this had a greater impact on the interest rate path than a stronger krone. Over time, however, the nominal exchange rate is not the main force. The most important influence on competitiveness in Norwegian business and industry and the purchasing power of the Norwegian krone is changes in the real exchange rate. The real exchange rate can be measured in a number of ways, for example by consumer prices or labour costs in Norway relative to our trading partners measured in a common currency. The real exchange rate has fluctuated widely over time and has deviated over longer periods considerably from the average level since 1970. The real exchange rate has nonetheless shown a tendency to revert to this level. Over time, the exchange rate acts as a buffer in the global economy. When economic activity is high in one country, an appreciation of the country’s exchange rate will have a dampening effect. Conversely, when there is a need to stimulate the economy, a weaker exchange rate will boost growth.
If for instance lending to households is weak while lending to companies is strong, and we only have a broad tool such as the policy rate or the countercyclical capital requirements, it will be hard to achieve a policy rate or interest rate margin which is optimal for both sectors. Sector-specific capital requirements would enable increasing the interest rate margin only for the corporate sector, thus avoiding a contraction for households. We can illustrate sector-specific tools by adding an index (S) for sector-specific tools:  itlending  it   t , S ( z t ,S ) ,S It might be assumed that macroprudential policy ought to reduce the need for monetary policy to lean into the wind. This is true to a certain extent. Macroprudential policy is important in offloading monetary policy. If the macroprudential policy tools can increase the interest rate margin, the policy rate can be put at a lower level than would otherwise have been possible without an increase in credit growth. Monetary policy can thereby stimulate a faster economic recovery through other channels, like the exchange rate channel, without risking the financial stability. However, in practice there is a limit to how much prices on different credit markets can be affected through regulation, and how much lending rates can thus diverge from the monetary policy rate. If the divergence is too wide, incentives to circumvent the regulations are also great, i.e. conducting regulation arbitrage.

The most important indicator in this assessment is the credit gap, which is a measure of how much credit growth deviates from its long-term trend. The reason for the credit gap having gained a key role in the assessment is that it has proven to be the indicator that warns of an impending crisis best and sufficiently early. A pure mechanical application of the credit gap can provide a certain guide to when the capital requirement would have been activated (see figure 1).6 Figure 1. Time periods when countercyclical capital buffers should have been activated based on historical measures of the credit gap (per cent). 3  2,5  2  1,5  1  0,5  0 81  83  85  87  89  91  93  95  97  99  01  03  05  07  09  11  Countercyclical buffer Households Non-financial corporations  Note: The calculations are based on a mechanical application of the credit gap approach. We can see that the requirement would have been activated on two occasions. The first time would have been a few years before the banking crisis of the 1990s, and the second time around 2005, that is just before the global financial crisis. We can also see which lending makes the credit gap grow by applying the approach separately to different sectors. The driver of activation of the capital requirements in the 2000s is mainly the household sector.