samchain/econo-pairs-v1 huggingface dataset:
However, some slowdown is foreseen, partly because of a weak international trend but also due to subdued consumption. The high level of equity prices has been cited as a risk to US economic development. US stock markets have recovered completely from last autumn’s fall and new all-time highs have been noted. Equity prices are considered by many observers to be unduly high in relation to the companies’ profit expectations and there has been talk of a future correction. Given the importance of the share price rise for the US economy’s upward trend, a price fall could by the same token lead to a slowdown. Prospects for the euro area as well as for the Japanese economy seem to have become somewhat poorer since the December Report, at least for the coming year. In the euro area, it is mainly manufacturing which has weakened, while the consumption trend still looks relatively good. At the same time, household sentiment is closely related to the development of employment, not least in Germany. Thus, the international outlook can hardly be said to have improved since the publication of the December Report and there still seem to be risks of a development that is weaker. Industrial activity weaker but domestic demand good so far Turning to the Swedish economy, the statistics suggest that industrial activity may go on weakening. But households’ expectations of their own economy indicate that private consumption may remain relatively strong.

In other words, Icelandic banks had only limited access to ECB liquidity (although there was some access through subsidiaries in Luxembourg), which proved fatal during the global run on crossborder liabilities of banks that immediately followed the collapse of Lehman Brothers. But there is always a silver lining. The lack of an adequate safety net and the absence of international or regional co-operation at the peak of the panic forced Iceland to adopt a radical solution in order to ring-fence the sovereign from the collapsing banks. These were private banks, and a bail-out by the Icelandic sovereign would have bankrupted the country. The banks were split overnight into domestic and international banks without disruption in the public’s access to banking services, and the international part went into resolution. The result was a drastic cut in the leverage ratio of the remaining banking system, from over 30 to around 5. Yes, Iceland had to introduce capital controls, which are still in place. But those controls did not take the form of limiting deposit withdrawals from banks, as was done in Cyprus, and current account transactions have been mostly unrestricted. History and further research will tell whether this cold turkey response turns out to be better than more gradual approaches that sometimes turn into “death by a thousand cuts”.
Given this, the Riksbank has initiated a research project to obtain more information on how investment and use of IT as well as reorganisation affects productivity growth in Sweden. The project is in two parts. The first sub-project is a micro study which examines whether companies that have reorganised and invested in IT will have higher productivity growth. The second part of the project is based on an own survey study in collaboration with Statistics Sweden, which covers the years 1997-2005. The first, preliminary results of this study were presented at a conference organised by the Riksbank at the end of last year on the theme of productivity. 8 They indicate that the companies that made organisational changes at the same time as investing more in IT than the average company experienced a substantial increase in productivity growth. 9 The study also shows that it was not possible to find any significant effects on productivity growth from IT investments in the companies that had not reorganised. It is therefore important to take into account investments in "organisational capital” when analysing productivity growth. Other investments in knowledge capital such as staff training and R&D should also be important to productivity. This is also confirmed by studies using US data. 10 This type of measure is not reported as an investment in the official statistics. This is despite the fact that they can be regarded as intangible investments. Instead they are calculated as a cost to companies.

Given past events, my feeling is, although I have no firm facts to base it on, that the low productivity outcome for 2007 will be revised upwards somewhat as the statistical base improves. But this will not alter the picture of 2007 as a year of very weak productivity growth. We will not know the definite outcome for a couple of years yet. In the Monetary Policy Update published in December last year we could observe that productivity growth had been weaker than we estimated in our October Report (see Figure  12  Sveriges Riksbank (2007). 13  Öller (2007). BIS Review 12/2008  5  3). We therefore revised down our forecast slightly in the short term. In 2008 we envisaged a gradual recover in productivity. After that, our assessment was that productivity growth would develop roughly in line with the trend rate of increase. Several factors indicate that the long-term rate of increase in productivity will remain relatively high, although it will not be as high as during the years at the beginning of the 2000s. Globalisation is one such factor, and will probably continue to be a driving force behind productivity for a long time to come. Integration within the EU is deepening. The countries in eastern and central Europe who have moved away from planned economies have many years of rapid development ahead of them before they catch up with western Europe.
In 1986, the General Banking Law introduced limitations on currency mismatch, constraints on related party lending, and restrictions for banks to receive goods instead of liquid resources; all of them, elements that were common practice before the 1982 crisis. Paradoxically, what could be considered harsher regulation did not hamper financial deepening. Instead, it fostered solvency and credibility of the banking system and allowed its healthy development in the ensuing decades. At the core of this development was the creation of a funded pension system, and subsequent capital market reforms, together with capital market openness, which dramatically changed the size, composition, depth, and strength of the financial sector in Chile. Now, during the transition toward fully implementing the current policy framework, Chile experienced a period of capital control that have been highly reviewed in the literature. The unremunerated reserve requirement (URR) implemented in Chile during the 1990s helped to change the composition of capital flows toward longer terms but was less effective in terms of reducing the aggregate level of capital flowing into the country. After removing the URR completely by the end of the 90s and allowing the exchange rate to fluctuate freely, the banking and corporate sector learned to operate in a completely different environment, characterized by an extensive used of the derivative market. In In particular, corporations have learned to operate in a flexible FX environment by using both, natural and market-based FX risk hedging instruments.

Inflation prospects difficult to assess One consequence of the Riksbank basing its analysis on conditions in Sweden — and not being guided by the actions of other central banks — is that in the past the repo rate has been held at a considerably lower level than in the United States. There have also been periods when our instrumental rate has been below that of the European Central Bank. The central factor when the Riksbank sets its instrumental rate is the prospects for inflation one to two years ahead. A prospect of inflation above the 2 per cent target normally leads to a repo rate increase, while if inflation is expected to be lower than the target level, the repo rate should normally be lowered, and if the rate of price increases is forecast to lie around the target level of 2 per cent, the rate should be left unchanged. The economic outlook in the rest of the world ought to imply a weak tendency in Sweden as well, with an attendant easing of inflationary pressure and consequently a further reduction of the repo rate. However, the decision-making situation is not that simple. Three things in particular make the picture more complicated: ·  Firstly, inflation is currently above the Riksbank’s 2 per cent target. The greater part of the increase is admittedly attributable to a number of clearly defined transitory factors that are calculated to drop out next spring. Food prices, for example, moved up in connection with mad-cow and foot-and-mouth disease.
Rather, it may be dangerously procyclical. So in the immediate aftermath of the referendum, we invited – indeed encouraged – firms to apply for transitional measures to smooth the impact of the risk margin during a time of market turbulence, and I also very much welcome the European Commission’s request for EIOPA to review the risk margin’s role more broadly. Take the leverage ratio as another post-referendum example of steps we are taking to put a smoother finish on the reforms. The framework was originally introduced to mitigate the risk to financial stability of excessive leverage. In August we decided to exclude central bank reserves from the exposure measure. They do not expose a firm to additional risks: as the ultimate settlement asset, central bank reserves are a unique asset class. Leaving reserves in scope would have obstructed the effective implementation of monetary policy. But neither did we want to take them out only to see a reduction in the nominal amount of capital required to meet the UK leverage ratio standard. So in making the change, we made clear that we will recalibrate the standard to offset this impact. The policy intent of our framework is preserved, while the unintended consequence is addressed. In a similar vein, let me say a quick word on the reforms currently being discussed in Basel – specifically the review of the use of firms’ own internal models for calculating risk-weighted assets and therefore their capital  7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  requirements.

It is well known that the cause of Turkey’s inflation is fiscal in nature. The last year in which Turkey had a budget surplus was 1970. The budget deficit increased steadily throughout the last decade, finally reaching double-digits in 1999. The fiscal imbalances have also caused difficulties in financing the deficit. Over the last couple of years the amount of external financing available for the budget deficit has declined, causing increased pressure on the domestic financial sector and an increase in the domestic debt. The ratio of cash domestic debt to GNP grew rapidly during the 1990s, finally reaching 24% of GNP in 1999. The increases in the deficit and in the level of domestic debt during recent years are mirrored in the levels of domestic interest rates. The increasing pressure on domestic borrowing has kept real interest rates at high levels, hovering around the mid-20s during the 1990s and rising to over 50% at frequent intervals. I think this brief recital of facts should be more than sufficient to explain why it is high time to face the predicament of the Turkish economy. A radical program is urgently needed to address Turkey’s deep-rooted problems, and it is my wish today to convince you that the program we have delivered to deal with them is well prepared and comprehensive. Let me summarise our goals and the overall strategy by which this program aims to achieve them.
Take the mobile application Swish that was introduced in 2012 as an example. In the beginning, few of us had Swish, and it did not provide much value. However, as more people adopted Swish, its value increased since the number of connections increased. Swish is also good example of the benefits of banks working together. By launching a joint service, the Swedish banks managed to benefit from network and scale effects. Moreover, sharing infrastructure and development costs is cost-effective and makes it easier to reach the critical mass needed to take advantage of economies of scale. It is also important to point out that the uniformity of money is closely related to network effects. In a situation with multiple currencies present, we would not be sure if the merchant or payee would accept the money held. That would mean  9 [15]  having to carry different kinds in our wallets, establishing exchange rates and so on, all very inefficient. It is then likely that some would limit themselves to a subset of currencies. It is then undoubtedly harder to achieve the benefits from network effects. While network and scale effects generate efficiency gains, they also create barriers to entry. Or put differently, together network and scale effects often result in a ‘winner takes all’ situation. These entry barriers, thus, manifest themselves in possible concerns about the level of competition. Therefore, the public sector needs to balance the perils of what is often called a natural monopoly with the gains from joint services or sole providers.

And, I believe the experiment was as instructive for the participants – who were made aware of the supervisory authority’s expectations – as it was for the ACPR itself, which witnessed the emergence of extremely promising methods and avenues for a future “trustworthy AI". In order to conclude my speech, I would like to come back to the value of the French financial centre’s “team spirit", with one assurance and one invitation: 3/4  BIS central bankers' speeches  1° the assurance is that the openness of the Banque de France and the ACPR to the  innovative ecosystem will continue to guide our action and our strategy in the years to come. Launching experiments on new practices? creating a digital platform for experimentation common to the Banque de France and fintechs? All your suggestions to move forward together in this direction are welcome... 2° the invitation is for private players to think collectively if they want to consolidate the ecosystem in which they are developing. I would like to mention a few areas that seem to me to warrant such a collective investment: data sharing, in accordance with the principles of the GDPR, of course;interoperability issues, for example in the thriving world of blockchains and decentralised finance; the development of standards, or even certification techniques, in the field of security, AI use and, last but not least, the preparation for the energy transition and the development of green finance.
On the other hand, a tighter hold on the reins during the good years preceding the crisis would have increased resilience and provided more room for manoeuvre to manage the crisis when it did occur. It would then have been possible to manage the crisis within a couple of years and we wouldn’t still have to be dealing with it today. My conclusion is that well-balanced monetary and fiscal policies offer the best possible chances of preventing financial crises, but essentially other measures are needed. We need tools that are specially designed for working with the stability of the financial system. Macroprudential policy – a new policy area Traditionally, financial supervision has had a rather one-sided focus on the health of individual financial institutions. In practice this has also been the case in Sweden, although formally Finansinspektionen has the task of working for a stable and efficient financial system alongside its consumer-protection tasks. However, the fact that individual parts of the financial system appear to be healthy does not mean that they are immune to contagion from other parts of the system. The institutions have exposures to one another and it is sometimes unclear who is exposed to what risks. When an individual institution experiences problems, this may then have serious repercussions for the financial system and, ultimately, the real economy. However, traditional supervision has not sufficiently taken into account the risk of financial problems becoming contagious. Monitoring those risks is also a rather different process to monitoring the risks in an individual institution.

However, as development in this area progresses it is probable that the number of specialised macroprudential-policy tools will increase. 10  10  The Bank of England recently carried out an inventory of the tools that could be used to conduct macroprudential policy, see Bank of England (2011): Instruments of Macroprudential Policy: A Discussion Paper prepared by Bank of England and Financial Services Authority staff, December 2011. BIS central bankers’ speeches  5  But do we really need any new tools in this area? Isn’t it enough that the supervisory authority can introduce a mortgage cap for consumer protection reasons and that the central bank can raise the interest rate to stabilise inflation and resource utilisation when credit growth is high? No, I don’t think so. Referring to consumer protection seems to be an overly narrow approach in the face of a rapid growth in lending to households and rising housing prices. On the other hand, the impact of the interest rate is too wide-ranging to be effective and risks doing more harm than good. A tool such as the countercyclical capital buffers may seem to be so wide-ranging that it should be able to work in approximately the same way as the interest rate. Both tools affect the price of credit in the economy. When the banks are forced to hold more capital their funding costs increase, as they do when the interest rate is raised, and the price of credit also increases.
In particular, the Discussion Paper focuses on the thresholds for resolution strategies, the calibration of the requirements, the eligibility of instruments and the application of MREL within banking groups. The window for responses to that paper is open until 18th March this year, and we would welcome thoughts from any of you on any of these issues. We plan to publish a Consultation Paper in summer this year, informed by those responses and setting out any proposed changes to the MREL framework, ahead of publishing our revised policy by the end of 2021. While I am satisfied with the progress the UK resolution regime is making towards our 2022 commitment, the UK’s role as a global financial centre in an open and global financial system is much wider. We therefore place great importance on having strong and effective common global regulatory standards and cross-border cooperation. The UK continues to play a proactive role in global forums such as the Financial Stability Board for policy development and supporting cross-border resolution planning. Keeping resolvability in the spotlight on the international stage continues to be an important way for us to lean against fragmentary behaviour. I 12  This is the formal, legal term for the required loss absorbing capacity that can readily be used in a resolution. As set out in our June 2018 Statement of Policy on the Bank’s approach to setting MREL.

As a result of these various failings globally and domestically the financial system acted as an amplifier, intensifying the UK economic downturn at great economic and fiscal cost. Budget 2009 detailed the largest fall in UK GDP since the Second World War and forecast a near doubling in the fiscal debt ratio in just four years, from 36% of GDP in 2006-07 to 69% in 2010-11. In order to underpin the UK’s economic and fiscal position, the Government took the unusual step, at least in public finance terms as I am sure this expert audience would appreciate, of making, what amounted to, a provision of up to £ or 3½% of GDP, for expected losses on its many and various interventions in the UK banking system.3  Clearly, the options authorities had to manage the failure of financial firms were insufficient, which led to some difficult and disruptive choices. The lack of a credible resolution framework is self-evident in the scale of taxpayer bailout. Of course, in the absence of the counterfactual, it is impossible to precisely quantify the impact of the lack of a credible regime. But I agree with my colleague, Jon Cunliffe, that the negative impact was likely to be considerable.4  Transparency around what is likely to happen if a bank fails is a fundamental complement to a credible resolution regime. Authorities previously relied upon it being ‘constructively ambiguous’ as to whether or not they would bail out a failing bank.
Over time a policy that quickly subdues inflationary impulses would probably result in more stable inflation, but there would be a risk of substantial fluctuations in the real economy. We have chosen a two-year horizon for monetary policy because this is considered to give sufficient scope in most cases to ensure a good and stable development of the real economy. However, the rate at which it is desirable to bring inflation back on target in an individual case depends on what shocks  2  BIS Review 96/2006  the economy has suffered and how substantial they are. Sometimes the deviations from target can be so large that there is reason to allow inflation to return to target beyond the normal two-year horizon. In these cases, we shall explain this in connection with our decisions. Back when the new Sveriges Riksbank Act came into force in 1999 and a new Executive Board entered office, the Riksbank published a clarification of monetary policy, where it was pointed out that the horizon might need to be longer when the economy was subjected to large shocks 1 . The new element is that we are clearer on the point that the choice of time horizon concerns a desire to alleviate the consequences for the real economy. Another new element since last year is that we make forecasts under the assumption that the repo rate will develop in line with market expectations, as these are reflected in implied forward rates.

First, in contrast to the textbook account of shocks to the Money supply via the proverbial helicopter drop of base money (pound notes), firms and households are not caught in a bind where, in aggregate, they are forced to hold the increased supply of broad money, even if it exceeds demand. Following a shock to the supply of credit, in which some people or companies become less credit constrained, it will be open to others to reduce their existing borrowing as the extra money circulates around the economy via the purchase of goods, services and financial assets. Second, and more important, the shocks to credit supply are, in themselves, real not nominal shocks. And like other real shocks, causing changes in the balance of Aggregate Demand and Aggregate Supply, there is a nominal effect only if monetary policy does not respond via alterations to the path of short-term interest rates to keep the economy on a stable path and in line with the inflation target. Absent an appropriate policy response, the easing in monetary conditions would in time feed into inflation through an expansion of nominal spending. In the first instance, the expansion of “liquidity” represented by faster money growth may sometimes work through asset prices. That is because with imperfect substitution between different kinds of financial assets, relative risk premia may be altered, which in turn may affect borrowing conditions in capital markets.