samchain/econo-pairs-v1 huggingface dataset:
Egil Matsen: The equity share in the Government Pension Fund Global Introductory statement by Mr Egil Matsen, Governor of Norges Bank (Central Bank of Norway), Oslo, 1 December 2016. * * * Accompanying slides  INTRODUCTION The discovery of oil off the Norwegian coast has shaped the economy for almost two generations. Norway’s industry structure has undergone a fundamental change. Oil has lifted the level of prosperity and generated substantial government revenues. Chart: The Government Pension Fund Global Twenty years have passed since the government made the first capital transfer to the Government Petroleum Fund, which has since been renamed the Government Pension Fund Global (GPFG). Since then, Norway’s subsea oil wealth has to a large extent been transformed into foreign financial assets. The GPFG serves two main purposes: to insulate the central government budget from the effects of large annual fluctuations in petroleum revenues and to preserve a substantial share of the oil wealth and increase it for future generations. A milestone in the management of the nation’s oil wealth was the fiscal rule, adopted in 2001. The fiscal rule permits the government to spend the expected real return on the GPFG, then estimated at 4 percent. The rule was introduced to phase in oil revenues gradually into the economy in pace with the increase in the fund’s capital. The GPFG has grown rapidly over the past ten years. In line with the fiscal rule, the fund’s contribution to the central government budget has increased.

Furthermore, the general liberalisation of capital controls on domestic residents will take place once the largest obstacles have been successfully removed or neutralised and when certain economic criteria have been fulfilled, such as adequate FX reserves, market access for the sovereign and the banks, a wellbalanced and growing economy, etc. The aim is to minimise the risk of capital flight. 2  BIS central bankers’ speeches  The Icelandic authorities have emphasised public disclosure and transparency of relevant information about the liberalisation strategy. Last year, the solution to the failed banks’ estates, as well as the economic analysis on which it was based, was presented in a comprehensive manner. A few days ago, a bill of legislation on the treatment of offshore krónur was passed by Parliament. An English translation of the bill was posted on the website of the Ministry of Finance and Economic Affairs, along with the Explanatory Notes and a Q&A (with links on the Central Bank website). Yesterday the Central Bank published terms of a foreign currency auction directed at offshore krónur, to be held on 16 June. This speech is, of course, part of the process of disclosure and explanation. Furthermore, in a week or two, the Central Bank will issue a special publication on the economic analysis of capital account liberalisation in Iceland.
In last year’s exceptional environment, however, short-term interest rates, in the face of speculative attacks, rose at times to around double those for the US dollar. These spreads have virtually disappeared in recent months, testifying to the failure of those attacks to undermine the longer-term credibility of our exchange rate system. Combined with cuts in US interest rates last autumn, nominal interest rates in Hong Kong now stand at or below pre-crisis levels. Of course, real interest rates remain high, as prices have come down along with the sharp downturn in economic activity. But I believe that this process of price adjustment, although painful in the short run, demonstrates the flexibility needed to restore our competitiveness in the region, setting the stage for renewed growth in the period ahead. Indeed, asset markets are already responding to signs that the worst of the downturn may be behind us, both here in Hong Kong and in the region as a whole. Regarding the volume of financial activity in Hong Kong, domestic bank lending declined toward the end of last year, as corporate loan demand fell and banks reassessed risk factors. Yet growth in bank deposits and the money supply recovered at the same time, perhaps reflecting a rise in household savings in a period of uncertainty. Rising deposits and weak loan growth has left the banks well equipped to meet an expansion in loan demand during the recovery phase of the cycle, and market conditions overall seem now more conducive to corporate fund-raising.

We believe that community support for our monetary and banking policies, and confidence in our financial system are strong. But we also know that confidence cannot be built on blind public faith in a remote monetary authority carrying out its esoteric policies in a quiet and mysterious way: it must be nurtured through explanation, through informed discussion, through a system that is both accountable and transparent. The safety of our banks and the stability of our currency are everybody’s business, and the Asian financial crisis has brought this fact home to the people of Hong Kong. Economic hardship has prompted more people to ask more questions about the way Hong Kong manages its monetary and banking systems. Energetic policies, such as the operation in August, have also stimulated debate some of it heated - over the rights and wrongs of what we are doing. Quite properly, the Legislative Council has been the focus of much of this debate, not just in its motion debates, but also in the many discussions organised by this panel on a variety of subjects. We have seen more interest in our work from Members during the past year than in any other year since the creation of the HKMA in 1993. I welcome this attention. It gives us the opportunity to enter into productive discussion with those who know and represent the community. It also shows that accountability is alive and well.
8  https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/supervisory-statement/2020/ss317-update-april-2020.pdf 6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  A key challenge in Solvency II is that the FS has been calibrated for corporate bonds, but firms now hold ever increasing exposures to less liquid asset classes, with significant basis risks between asset exposures and the FS calibration data. We consider that there is potential merit in differentiating the FS by asset class, however, this needs to be balanced against the extent to which different asset classes are sufficiently homogenous, as well as the availability and credibility of data available to derive such calibrations. A more granular FS could therefore give rise to additional risks. Related to this, firms make their own delineation between financial and non-financial assets, and it is important that their assumptions are prudent. Risk Sensitivity of the FS The current construct of the fundamental spread has some advantages: it has been largely predictable under stress, and it promotes counter-cyclicality. However, it is reasonable to ask whether the FS has gone too far in this direction. The impact of the long-term average spread floor makes the FS a predominantly backwards looking measure, insensitive to current market signals. For example, in Chart 10 are the credit spreads for A-rated financial corporate bonds, set against the year- end 2020 FS9. Under stress, firms will only see the FS increase under a ratings downgrade, thus completely setting aside any information contained in market spreads.

As I said earlier, MA portfolios already include many types of debt instrument, and where assets are not MA eligible firms may consider – if appropriate – holding them outside the MA portfolio to back other liabilities. And the PRA has taken, as far as possible, a pragmatic approach to fixity – for example for floating rate bonds and for assets with inadequate modified Spens clauses. Over 2020, we saw very few applications for asset classes not already held in peer MA portfolios, instead seeing firms applying to invest in less liquid asset classes such as ground rents and ERMs. While the asset classes may not be new to us, firms can expect to be challenged when investing in asset classes that are new to them. We have published supervisory expectations in Supervisory Statement 1/20 “Solvency II: Prudent Person Principle”5 and Supervisory Statement 8/18: “Solvency II: Internal models – modelling of the matching adjustment”6. These cover risk management aspects including the consistency of investments with the prudent person principle, the ability to manage the assets – including in stress or in default – and the ability to model the solvency capital requirement appropriately. Next I would like to touch on the future direction for new asset classes in MA portfolios. As Sam Woods, the Deputy Governor for Prudential Regulation, and PRA’s Chief Executive said in his March speech7 at the ABI, we are wary of calls to encourage specific forms of investment with prudential regulatory incentives.
Confidence in some countries’ ability to service debt has been weakened. The monetary union is under pressure. (Chart 1: Current account) The crisis has its roots in global trade imbalances, with high saving in emerging economies and comparably large deficits in many advanced countries. The imbalances drove down long-term interest rates to very low levels and the appetite for risk grew. Inadequate financial sector regulation led to a further deepening of the imbalances. (Chart 2: Yield on 10-year government bonds) Four years after the financial crisis engulfed the world, a European version has now emerged. Both market participants and the authorities failed in their assessments after the introduction of a single currency. Prior to the introduction of the Economic and Monetary Union, there were wide differences between interest rates facing different European countries, which primarily reflected different inflation expectations across countries. But through the 1990s, long-term interest rates drifted down to German levels. Over the next 10 years, sovereign interest rates were fairly similar – and very low – for all euro area countries despite wide differences in debt levels, budget deficits and growth rates. Market participants did not take into account differences in sovereign creditworthiness. Sovereign debt was treated as virtually risk-free, both in the markets and by the authorities. The period contrasts with the recent two to three years during which interest rates on sovereign debt have widened sharply. For many countries, interest rates have reached very high levels.

In retrospect, we see that market participants failed in their risk assessment through the ten years following the introduction of the euro. Economic policy also failed. EU rules relating to budget deficits and public debt were disregarded early on when Germany and France exceeded the limits they had so eagerly advocated when the European Monetary Union was established. Other countries followed their example. Low interest rates made it easy to finance deficits by issuing new debt. BIS central bankers’ speeches  1  When financial markets collapsed in autumn 2008, the authorities had to intervene. Bail-out packages for banks shifted debt from private to public hands. Governments increased spending to curb the fall in activity. But Keynesian policy – increased spending to stimulate demand during a downturn – requires a willingness to exercise fiscal restraint during an upturn. Many countries had large budget deficits and high debt already before the crisis despite many years of prosperity. Limited growth capacity in the private sector also came into evidence when some countries could no longer stay afloat on borrowed funds. Good times turned into bad with the need for crisis-related measures. The burden became heavy to bear. Many countries are now attempting to rein in large deficits and rising government debt. Structural reforms are being implemented in Europe. Pension rules are being tightened and tax systems are under review. The cost of such reforms would have been lower in good times.
Their survey of HBS alumni found that the greatest impediments to investing in and creating jobs in the U.S. are our current tax code and regulatory burden and uncertainty, as well as lagging workforce skills. Absent changes on these fronts, the Rivkin/Porter study found that more than 70 percent of respondents expect U.S. competitiveness to decline over the next three years, and along with it, job-creating investment.8 Thus for me, explicitly acknowledging that monetary policy’s impact on employment is transitory and uncertain is a cardinal event. It signals to the markets that there are limits to the ultimate job-stoking efficacy of Federal Reserve policy. To the extent that inflation is running below 2 percent, the Federal Reserve may have somewhat greater latitude to pursue accommodation. However, the past few years have demonstrated, yet again, that allowing inflation to rise by no means guarantees faster job growth. The message to our nation’s fiscal authorities is that they cannot expect monetary policy to substitute for the need to get their act together, stop their shameful politicking, get on with putting their fiscal and regulatory house in order and do so in a manner that encourages rather than continually undermines job creation and economic expansion. Fiscal matters matter I noted how Texas has managed under the same monetary policy regime to more quickly return to peak employment than other states.

This could be done by stating that we would hold the federal funds rate at extraordinarily low levels until particular markers were reached with regard to the unemployment rate and inflation. I will talk about this in more detail in a minute. Alternatively, I have previously discussed how state-contingent, price-level targeting would work in this regard.7 Another possibility might be to target the level of nominal GDP, with the goal of bringing it back to the growth trend that existed before the recession. I think these kinds of policies are worth seriously contemplating as ways to enhance economic growth and employment while maintaining a disciplined inflation performance. Policy problem Such conditional-trigger and level-targeting policies could result in inflation running at rates that would make us uncomfortable during normal times. I understand this discomfort. The difficulties in reestablishing credibility following the inflation of the 1970s weigh on all central bankers’ minds. And many of us are conditioned by the work of Ken Rogoff8 and others, who note that in normal times, we may want conservative central bankers as institutional offsets to what would otherwise be inflationary biases in the monetary policy process. Given this strong anti-inflationary orientation of central bankers, appropriate policy actions may face a credibility challenge of a different nature than we are used to talking about – can conservative central bankers be counted on to commit to keeping interest rates low in the event inflation rises above their long-run target?
Of course, one must remain vigilant and constantly assess the risks – and try to reduce them when necessary. But it is probably quite rare that one will actually need to use macroprudential tools, or the policy rate, to subdue a credit boom and thus reduce the risk of a crisis. Growth in lending is normally something positive. It is, of course, difficult to say how often problems may arise, but one can conclude, for instance, that we in Sweden have experienced two financial crises with not quite twenty years between them, and this is regarded as unusually often. For the great majority of the time the central bank will thus be able to conduct its monetary policy in a normal way. Monetary policy and financial stability policy have, so to say, slightly different time dimensions. …and by those who say they should be entirely separate But I also believe that the problems are exaggerated by those who warn against integrating monetary policy and financial stability policy. For example, I believe that one can decide on both the policy rate and macroprudential supervisory measures at the same time and in a coordinated way, without either monetary policy or financial stability policy being perceived as less clear.

If there is an institutional framework that is credible from the start, it will not need to be used in most cases. It is to some extent this type of framework that the European Financial Stability Facility, EFSF, is meant to become. It will be able to buy government securities issued by euro area countries. However, it is difficult to restore market confidence when it is already seriously damaged. The institutional framework must be in place and have credibility before the crisis breaks out. This makes the crisis easier to manage and one might even prevent it arising at all. It is probably the case here that politicians in the EU have helped increase market distrust because of the way they have handled the crisis. For example, it is understandable from a political point of view that they have wanted to force private lenders to write off their loans to Greece. But from an economic perspective – and in the longer run also political – this is not such a good idea. This has meant that Italy and Spain have had to pay much higher interest rates than before – not primarily because one perceives a risk that Italy and Spain will be unable to service their debts, but because the market has become uncertain as to whether the politicians intend to take similar coercive measures here. If one suffers an acute crisis, whether one has created it oneself or not, one must consider carefully how it should be managed.
If we want the overall labour force to grow and the share of foreign workers to be stable, then we have to allow net immigration. That’s the bottom right of the triangle. If we want zero net immigration and the foreign worker share to be stable, then we have to accept zero labour force growth. That’s the top of the triangle. The trilemma represents the constraints. I’ve put them in rather stark terms, to reflect vividly the trade-offs we face. Collectively, as a society, we have to decide which corner of the trilemma we want to be at, or which corner we want to be close to. I’ll argue later on that we may be able to soften these constraints and reach more balanced outcomes. But the fundamental constraints and choices implied by the trilemma are real. 5 / 17  BIS central bankers' speeches  Are there ways to escape the trilemma? Or at least soften its hard constraints? There are two solutions that have often been mentioned. First, an increase in fertility. Second, an increase in resident labour force participation rate. A recovery in Singapore’s TFR is the best and most lasting solution that we can have, but its positive effects on labour force will only occur in the very long run. So here’s another thought experiment: Assume our TFR rises steadily from the current level of 1.2 to 2.1 (replacement rate) over next 15 years. Obviously, it will have an immediate impact on resident population and its effect will cumulate over time.

This has weighed heavily on resident population growth as seen from the relatively close correlation with the TFR. There appears to be three distinct phases in the last 30 years: In the 1990s, both the TFR and resident population growth declined in tandem. In the 2000s, the TFR continued to decline but resident population growth recovered. This reflected net positive immigration as the number of new citizens and Permanent Residents grew. In this decade, the TFR appears to have stabilised at around 1.2–1.3 while resident population growth fell sharply reflecting the tightening of immigration flows. 2 / 17  BIS central bankers' speeches  The next two slides are a thought experiment. They are not a forecast or prediction but aim to illustrate the implications of having very low resident population growth. First, let us assume that we have zero net immigration starting from this year. The resident working-age population – this is defined as citizens and permanent residents between the ages of 15–64 – will begin to shrink from around 2020. The exact year is not key. What is important to note is that it is not far off. By 2035, the working-age resident population will possibly decline by a cumulative 3.5%. 3 / 17  BIS central bankers' speeches  Second, let us assume zero net increase in foreign workers from now on. The overall labour force will decline gradually from around 2022, driven fundamentally by the shrinking resident labour force. These two assumptions taken together – zero net migration (i.e.
Strategic oil reserves have risen, while private reserves are low. This has exerted upward pressure on oil prices. The strike in Venezuela has also had an impact. The oil market is unstable. The extraordinary conditions in the oil market will not prevail indefinitely. Major economies such as the US, Germany and France are struggling with stagnation and fears of recession. Substantial tax relief and low interest rates are holding up activity in the US. The Japanese economy has been in a deflationary recession for a long period. In recent years, the krone exchange rate has shadowed the difference between Norwegian and foreign short-term rates. This is why the krone has been strong. In addition, high oil prices have had an influence. The effect of the interest rate differential on the krone has been intensified by conditions in capital markets. Investors have been favouring carry trades. Risk premiums in major currency markets have been low, which seems to indicate that investors have until recently been less prone to speculate in exchange rate fluctuations. As equity prices fell, investors started seeking alternative vehicles. This made the krone market more attractive. The krone appreciated at the same time as foreign stock markets and domestic equity prices fell. Bonds and other interest-bearing securities have been of particular interest. The interest rate differential between Norway and trading partners has contributed to a strengthening of the krone. Norges Bank has reduced the sight deposit rate from 7 to 5.5 per cent since 11 December.

By the same token, let me stress the relevance of the Investment Survey conducted annually by the European Investment Bank since 2016, whose most recent results for Spain have been presented at this conference. This survey contributes to improving our knowledge of the dynamics of firms’ investment and investment finance. In particular, this source of information has proved very useful in identifying the main obstacles to investment. The high coverage of European firms in different countries allows for comparison of investment and investment finance developments across countries. In the context of the pandemic, the results of this survey are even more relevant since they allow us to better understand the implications of the COVID-19 shock for firms’ investment across Europe. To conclude, let me thank the European Investment Bank for partnering us in the organisation of this conference and, more in general, for their very good collaboration with us. I would also like to thank speakers and participants at the conference for such fruitful discussions. I’m convinced these debates are very useful for enriching our understanding of economic problems and for guiding policy makers as to the best possible design of economic policies to tackle them. Thank you. 2/2  BIS central bankers' speeches