samchain/econo-pairs-v1 huggingface dataset:
The scale of the upside risk (G) has no bearing on the value of waiting and none, therefore, on the optimal timing of the firm’s decision. That’s because we assume it doesn’t take any significant time to implement the investment. The firm can therefore profit from the upside outcome (with a certain probability) whether it’s already invested by the time the event is realised, or instead chooses to wait until the good news actually comes through. The real value of delaying the decision is that you avoid locking yourself in to what could be a bad outcome – and the greater the danger and scale of those downside risks (λ and L respectively) the greater the incentive to wait. Thus, although we talk in general terms about the impact of “uncertainty” on investment this is really a euphemism for downside risks specifically. 7 In the case of Brexit you could spin this “Bad News” principle both ways. It’s worth recognising, for example, that weak investment doesn’t mean there aren’t potential upside outcomes. In principle businesses could well see positive opportunities from all this – it may just be that they have no reason to make the resulting investments until they actually know the final outcome. On the other hand, what you can conclude from weak investment is that, whatever the scale of those upside risks, firms definitely see potential downside risks from Brexit (L > 0). We know that directly, of course, from the various business surveys (Charts 2 and 3 again).

On the other, the weakening of the euro has put Swiss producers in a bind versus their European competitors and presented problems for Switzerland’s monetary policymakers. Stability and instability in relation to European currencies Over the course of several decades, the Swiss franc has appreciated against all European currencies. This applies not just to the nominal, but also to the real exchange rate (i.e. the exchange rate adjusted for the inflation differential between the Swiss franc and the relevant foreign currency), which is an important determinant of Switzerland’s international competitiveness. So, while the appreciation we have witnessed in recent years is certainly very pronounced, it is not entirely new. BIS central bankers’ speeches  1  Our currency has frequently experienced upward surges – often in conjunction with shortterm increases in exchange rate volatility. In the 1970s and 1980s, for instance, the Swiss franc appreciated substantially against all European currencies amid major fluctuations. The exchange rate to the German mark – which remained relatively stable – was an exception. This was due to structural similarities between the two countries’ economies and to the fact that both the German Bundesbank and the SNB operated according to comparable monetary policy principles at the time. Both institutions were focused on money supply targets and pursued a policy geared towards maintaining price stability. In the 1990s, monetary policy in most of the EU countries was dominated by preparations for the launch of the European single currency.
At the same time, those employed are working, on average, fewer hours, and this has negatively affected labour utilisation. Moreover, despite the relative improvement in the unemployment and labour force participation rates over the past few years, the unemployment rate in the euro area is currently still around 3 percentage points higher, and the labour force participation rate around 6 percentage points lower, than the corresponding figures for the United States (see Chart 4). So although significant progress has been made in raising labour participation and in reducing the unemployment rate, there is still room for increasing the rate of utilisation of the labour force. As I stated earlier, euro area growth has been adversely affected by a continued decline in average hours worked per person employed. Data for the business sector show that in 2005, Europeans worked, on average, 300 hours less per year than Americans, and less then they did in the early 1980s (see Chart 5). This gap between the United States and the euro area, which has been widening, reflects the shortening of statutory full-time working weeks and a rise in part-time employment in the euro area (see Blanchard, 2004). Finally, the more dynamic demographic developments in the United States account for a substantial fraction of the real GDP growth gap over the past ten years. Since the mid-1990s, population growth has been on average about four times higher in the United States than in the euro area.

The impact of employment protection legislation may be particularly adverse in industries that are subject to rapid technological change. In the context of increasing international economic integration, policies that constrain the reallocation of workers from uncompetitive industries to industries with a comparative advantage can adversely affect output and employment. To address the challenges of globalisation, institutions have to be in place to ensure that people are equipped with the right skills to safeguard their employability (Gordon 2004). These arguments do not imply that workers cannot be protected against unemployment in an efficient manner. An alternative approach is “protect the worker, not the job”. A less restrictive framework of employment protection would go hand in hand with better unemployment benefits. Such a combination of labour market institutions is at the core of the Danish so-called “flexicurity” model, which has recently received considerable attention. In Denmark, job turnover is also relatively efficient, possibly as a result of relatively long notification periods which allow displaced workers to search for their next job in good time, aided by active labour market measures (such a training, etc.). As a result, the rate of long term unemployment is low. Another pertinent point, supported by the empirical evidence, is that rigidities in labour markets and restrictive product market regulations are also closely connected. Recent studies have shown a high correlation between employment protection legislation and restrictive product market regulations across OECD countries (Nicoletti and Scarpetta (2005)).
Should such a risk materialize and lead to a deterioration in price setting behavior, which in turn hampers the attainment of medium-term inflation targets, a tightening earlier than the one envisaged in the baseline scenario would be considered. Dear Guests, The CBT will continue to monitor fiscal policy developments closely while formulating monetary policy. Increasing public savings and maintaining the fiscal discipline are essential to control the current account deficit driven by the disparity between domestic and external demand. The medium-term perspective included in the revised Medium Term Program (MTP) is seen as an important step in this direction. Accordingly, our revised forecasts take the projections of public expenditures in the MTP as given, while tax adjustments are assumed to be consistent with inflation targets and automatic pricing mechanisms. Should the fiscal stance deviate significantly from this framework in a way to have adverse effects on the medium-term inflation outlook, a revision in the monetary policy stance may be considered. Monetary policy will continue to focus on achieving lasting price stability in the period ahead. Strengthening the commitment to fiscal discipline and the structural reform agenda would support the improvement of Turkey’s sovereign risk, and thus facilitate macroeconomic and price stability. In this respect, on closing my remarks, I would like to remind you once more that timely implementation of the structural reforms envisaged by the MTP and the European Union accession process remain to be of utmost importance. Thank you for your participation. BIS Review 159/2010  15

The net banking income of the three leading groups using IFRS grew by only 3.8 per cent in 2007, after rising by 18 per cent in 2006. However, the aggregate net profit under French accounting standards for the French banking system in 2007 reached nearly € billion, making it possible to generate income that is used in part to strengthen the institutions’ financial foundations, thereby contributing to the financial stability of the Paris market. The diversification of French banking groups’ activities has proven to be a strength. Several business lines are showing positive trends, with further gains in retail banking, which posted growth of 9.1 per cent (particularly in foreign operations, with an increase of 22 per cent compared to 2006), and project financing. Retail banking is still a core business for French banks and it played a critical role in stabilising income sources since the beginning of the financial crisis. Origination of new loans for non-financial agents remained high. Proper pricing of risks according to the credit quality of borrowers is therefore a key issue in France’s highly competitive lending market. By contrast, corporate and investment banking activities had a broadly negative impact on earnings, due to the combined effects of asset impairment and falling profits. Losses from asset management vary more significantly from one institution to another. What can we learn from the major banks’ first quarter earnings in 2008?
At the very least, during the crisis, we have seen deleveraging proceeding at an accelerated pace, although interest rates have been brought down – and this is the reason why there has been a zero lower bound problem. I suspect that, symmetrically, interest rate hikes would have been powerless to stop the incredible build up in leverage prior to the crisis. This is the very reason why we need additional – macro prudential – tools to deal with financial instability. But this analysis also shows that macro prudential and monetary tools are not independent. So we have to give up the ideal vision of a world where two objectives – price and financial stability – would be pursued with two independent set of instruments. The  BIS central bankers’ speeches  1  reality is somehow messier and this has important consequences. Operating two different policies with two sets of interacting instruments is definitely a challenge. Once we move away from the pure “Tinbergen” world, preserving the operational independence of monetary policy may require particular attention. Add to this that mandates and accountability regimes are very different for price and financial stability. Central Banks are independent, but macro prudential authorities are not. In all major jurisdictions, Governments, and Parliaments, are deeply involved in the organization and management of macro prudential supervision. Likewise, while price stability mandates are precisely defined and often quantified, financial stability mandates are specified in very broad terms. There are good reasons for this situation.

The Bank of Zambia therefore compiled all the stakeholder inputs and comments and submitted proposed amendments to Government. Managing Director, I am glad to report that Government responded favorably to the submissions made and have today re-issued the regulations as SI 55, incorporating the majority of the proposed amendments. As you may be well aware, Government extended the date of implementation of the SI to 1st July 2013 from the initial 16th May 2013. I now urge all stakeholders to read the new regulations carefully and make appropriate representations where need arises. The commercial banks in particular will play a critical role in giving guidance to their customers on the Regulations. The SI has already been posted to the Bank of Zambia website which can be accessed from www.boz.zm. Allow me to reiterate that the intention of the Balance of Payments regulations are merely to monitor the flow of funds in and out of the republic with the ultimate aim to provide more accurate data to facilitate decision making on the national economy. Managing Director, The Bank of Zambia will continue to implement and monitor various regulatory measures aimed at enhancing the operations of the banking sector and efficiency in the wider economy and remains committed to support all efforts to reduce the cost of doing business in Zambia.
However, even if we were to find ourselves in such a situation we should not change the inflation target. It takes a long time to build up confidence in an inflation target, and to temporarily replace the inflation target with a price level target would damage credibility. Inflation expectations The question of the importance of inflation expectations has risen once again in that there has been greater discussion of deflation, particularly in the United States, where the policy rate is close to zero. In February, the Fed for the first time published its long-term forecasts for growth, unemployment and inflation. The forecasts show that the Fed is aiming to keep inflation between 1.7 and 2.0 per cent a year in the long term. According to the Chairman of the Federal Reserve, Ben Bernanke, this inflation forecast in actual fact represents an inflation target. The increased clarity over the Fed’s aims is intended to help stabilise inflation expectations. It is important for monetary policy that inflation expectations in the longer term are anchored firmly around the inflation target. Previously, when inflation was higher than 2 per cent it was important that expectations did not rise too far above two per cent. Now that inflation is lower than 2 per cent and the forecasts point towards CPI inflation being negative later this year, it is important that they do not fall too far below 2 per cent and in particular that there are no expectations of deflation.

BIS Review 25/2009  5  Several companies state in the Riksbank’s company survey, which was carried out in December and January, that they have not experienced such a sudden slowdown in the economy as during the final months of 2008. The companies also say that they have found it increasingly difficult to finance their operations. But no clear credit crunch is yet visible in the official financial market statistics. Lending to companies increased by 0.3 per cent in January compared with the previous month and by 10.6 per cent compared with the same month last year. Our most recent forecast is that GDP will fall by 1.4 per cent this year. Towards the end of the year GDP is expected to begin to rise again. But as with international economic activity, there is a substantial risk that Swedish developments will also be poorer than in our main scenario. The GDP forecast for this year has been revised down substantially since last autumn. In September 2008 the Riksbank forecast growth this year of 0.9 per cent. It is very rare that forecasts are changed so much in such a short time. The revision is way outside the 95 per cent confidence interval that usually applies to our forecasts. It is also the reason why monetary policy has changed so radically since last autumn. The weakened economic activity is now also having an increasingly clear effect on the labour market. Employment has begun to fall and unemployment has begun to increase.
Upturn cut short by sovereign debt problems in 2011–2012 An effect of the severe crisis of 2008 was a shutdown in global trade, which brought the Swedish economy to a sudden halt. To support the economy, the Riksbank quickly lowered the repo rate to a, at the time, historically low level of 0.25 per cent. Around the world, other central banks and governments made herculean efforts to kick-start the financial system and reverse the trend. As the situation on the credit markets improved and global trade picked up, the recovery occurred more rapidly than expected in Sweden. From mid-2010, the Riksbank began raising the repo rate towards a more normal level. But during 2011, the recovery stuttered when unease linked to the problems of heavily burdened public finances in several European countries started to affect the credit markets to an ever-increasing degree. Measures by institutions such as the EU and the ECB helped to stabilise the situation, but weak confidence and low demand among households and companies subdued European developments. This, in turn, led to a slowdown in Swedish economic activity, despite relatively high domestic demand. GDP fell again in 2012 and the Riksbank lowered the repo rate in a number of steps. Focus on inflation and maintaining confidence in the inflation target has produced results Something which provoked head-scratching around the world during these years was that inflation remained at a relatively high level to begin with, despite the major economic slowdown after 2008.

11 This might, for example, be a question of helping to mitigate risks associated with high indebtedness and rising housing prices. But, and this is important, monetary policy cannot be expected to be the solution when managing risks that stem from fundamental problems relating to the functioning of markets and the incentives for indebtedness, housing construction and employment. Other policy areas need to rectify such problems. 11 See, for example, my speech at the Swedish Economics Association in 2016 for more details about this. 9 [13]  Reforms needed in the housing and macroprudential policy areas As a result of Sweden’s own crisis in the early-1990s, comprehensive changes were made to economic policy in order to come to terms with deficiencies that became clear during the crisis. We adopted a floating exchange rate and a framework for fiscal policy that would ensure public finances were sustainable. The changes created a stability in the Swedish economy that has been of considerable benefit, not least during the financial crisis. Sweden had the advantage of being able to tackle the economic slowdown with a fiscal policy that was not hampered by major deficits and a monetary policy. The latest crisis was also the starting point for changes in economic policy areas, primarily to mitigate the risks of financial imbalances once again creating problems for the economy as a whole. But the difference is that Sweden still, ten years after the crisis, has not really managed to fully implement these changes.
Monetary policy and the Swiss franc  Switzerland conducts an independent monetary policy and has historically had a strong and important currency that plays a much bigger role in the international financial system than the  BIS central bankers’ speeches  1  size of the economy would imply. The attractiveness of our currency as a safe haven reflects the stability of the country and is, as such, an asset for our economy. However, since the start of the crisis back in summer 2007, this factor has also repeatedly been a source of pressure. The Swiss franc started appreciating in August 2007 (figure 2), with the onset of the US subprime crisis. The huge uncertainty generated by the collapse of Lehman Brothers one year later and the Great Recession which ensued put the Swiss franc under further upward pressure. The situation worsened in 2010 and 2011. The European sovereign debt crisis and the fears of a break-up of the monetary union sent jitters through financial markets. In addition, market participants were worried that the US Congress would not reach an agreement to avoid hitting the debt ceiling. To complicate matters still further, the global economic outlook turned noticeably gloomier. As a result, enormous safe-haven flows poured into the Swiss franc. From August 2007 until August 2011, the Swiss currency appreciated by about 40% in real effective terms. Yields on Swiss Confederation short-term debt turned negative and have remained negative ever since.

In the near future, Turkey will unquestionably attain an economic and social level it deserves by reaching a social consensus and by taking appropriate policy actions today. Thank you all for listening to me. 4  BIS Review 35/2001
Indeed, having central banks mainly one instrument, the interest rate or the money supply, but not both, financial stability was mostly ignored. This is not the case of emerging market economies, where after many financial crises, the role of financial stability was always central in policymaking. Indeed, the most relevant aspect of financial stability was in the international financial transactions area. For this purpose, central banks, most usually, manage exchange rate policies, hold international reserves and dictate norms to avoid currency mismatches and external payment crises. In Chile, the Central Bank’s objectives are price and financial stability. The Constitutional Law explicitly establishes that “the Bank shall have as its purposes to look after the stability of the currency and the normal functioning of internal and external payments.” Indeed, the resilience of financial systems in emerging markets during the global financial crisis owes much to the fact that financial stability was already an important piece of the policy framework. Three issues I would like to discuss regarding financial stability and monetary policy:   First, was the crisis caused by monetary policy?   Second, what are the instruments for financial stability?   And third, what are the interactions between financial stability and monetary policy? Regarding the cause of the crisis, I do not think monetary policy, conducted, for example, on the basis of a Taylor rule was the main culprit. Very low interest rates in advanced economies induced high risk-taking as financial institutions were searching for yields.

In this sense, the recent creation of a Financial Stability Committee in Chile should improve coordination among regulators and have a view on financial stability and risks. Over time, and as learning takes place, some legislation should be introduced in order to enhance the effectiveness of the Committee. In the Central Bank, evaluation of financial vulnerabilities and strengths is performed bi-annually in our Financial Stability Report. Finally, regarding the interactions between macroprudential policies and monetary policy, I would like to make some comments.4 The traditional view has been influenced by the Tinbergen principle, by which there should exist as many instruments as policy targets. This view is reinforced by the fact that, as I argued above, the interest rate is too blunt of an instrument to deal with asset price bubbles and financial dislocations. Therefore, we can think of a separation between the interest rate – the monetary policy instrument to achieve the inflation target – and macroprudential tools to deal with financial stability. 4  See also Bernanke (2011) for discussion on these issues. BIS central bankers’ speeches  5  However, and perhaps unfortunately, the separation is not that clear. As I discussed before, actions of monetary policy, such as the Greenspan put, may create financial instability. The financial crisis also showed that it has effects on the business cycle and, hence, it has implications on monetary policy. Moreover, the transmission channels of monetary policy could be broken down during a crisis.