samchain/econo-pairs-v1 huggingface dataset:
Svein Gjedrem: Trade-offs in monetary policy Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the Centre for Monetary Economics/Norwegian School of Management, Oslo, 6 June 2006. Please note that the text below may differ slightly from the actual presentation. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 31 May, Inflation Report 1/06 and on previous speeches. The  Charts in pdf-format can be found on the Norges Bank’s website. *  *  *  Low prices for imported consumer goods, combined with high prices for our commodities exports, have contributed to a strong improvement in Norway’s terms of trade. The contribution from the rise in oil and gas prices is particularly high, but the terms of trade for the mainland economy have also improved. The Norwegian economy has been exposed to a strong positive income shock. So far, the increase in income has not led to markedly higher price and wage inflation. Businesses are using resources with steadily greater efficiency and the supply of labour has been ample. Partly owing to the improvement in the terms of trade, the exchange rate has remained strong, which has contributed to keeping inflation low. In the face of such strong external influences, smoothing developments in the Norwegian economy is a demanding task.

For the path of the Swedish economy in the coming years, no other single factor is therefore anything like as important as the total wage trend. The picture of the negotiations that are now beginning is mixed and tensions do exist. Since the previous survey in September, all the interviewed groups’ expectations of the annual wage rise have been revised upwards for all time horizons. Wage expectations are highest among the employee organisations. Moreover, the wage demands that have been presented are higher than before the previous round of negotiations. It is evidently becoming more difficult to find people with the appropriate competence for the jobs that are advertised. This presumably makes the risk of future wage drift greater than in previous years. All this could be a sign that we are approaching a situation where, bit by bit, aggregate wage costs in the Swedish economy start to accelerate, albeit from moderate levels. •  When it comes to judging inflationary pressure in the coming years, a central concept is total resource utilisation. The available amount of unutilised resources is crucial for the domestic generation of inflationary pressure, at least as long as inflation expectations are parked around our 2% target. In the coming years it is highly probable that, for the first time in a long while, our estimates of total resource utilisation - the output gap - will show that the gap has closed and the economy has reached or even moved above the capacity ceiling.
1  2  Borio, C.: Monetary policy and financial stability: what role in prevention and recovery?, BIS Working paper No. 440, January 2014  BIS central bankers’ speeches

In the past five years, when capital inflows were strong, we have put in place prudential measures to stem the build-up of excessive credit growth on consumer spending and on speculative housing demand. These include measures on credit card approval and maximum loan-to-value ratio for luxury housing. As I noted earlier, in the context of monetary policy framework, combining inflation targeting with macroprudential measure offers a pragmatic approach to deal with concerns on financial stability and asset prices without compromising the discipline of monetary policy with respect to its primary inflation objective. So far, we have found this approach to be practical and useful. On a final note, financial globalization is an important issue for emerging markets. It is the development that is likely to continue given the strong momentum of globalization in trade and in production that we are now seeing. But financial globalization is not without risk as the  2  BIS Review 142/2008  current turmoil shows. For emerging markets, this risk can be quite potent because of the smallness of the financial market and the limited abilities of economic agents to adjust to shocks. How well we manage this risk will depend critically on how well we manage the process of financial globalization. In dealing with this, my view is that we should not resist it, but should manage it by adopting a pragmatic approach to financial globalization.
The economic situation in July 2010  70  Purchasing Managers’ Index in the manufacturing industry Index over 50 indicates growth  70  60  60  50  50 USA Euro area Sweden  40 30 00  10  20  30  5  10  5  5  0  0  -5  -5  -10  4 3  2  2  1  -10  -15  July  -15  -1  -20  -2  10  Inflation Annual percentage change  3  April  08  08  4  -10  06  06  5  -5  04  04  5  -5  02  -10 02  10  0  00  15  Households  10  00  0  -20  20  Companies  15  40  02 04 06 08 10 GDP Quarterly changes in per cent calculated in annualised terms, seasonally-adjusted data  Bank lending to companies and households Annual percentage change  1  CPI  0  12  5  0  CPIF  -1  CPIF excluding energy 00  02  04  06  08  -2 10  12  Sources: The Institute for Supply Management, Markit Economics, Statistics Sweden, Swedbank and the Riksbank  Figure 6.

Employment, total, seasonally-adjusted data Labour force, ages 15–64, seasonally-adjusted data. Source: The OECD  BIS central bankers’ speeches  11  Figure 3. Credit developments in Sweden and the euro area Households and companies, annual percentage change 20  20 Euro area households Euro area companies Sweden households  15  15  Sweden companies  10  10  5  5  0  0  -5  -5 03  05  07  09  11  13  Note. For Sweden, MFI lending to households. Sources: The ECB SDW and Statistics Sweden  Figure 4. Number of occurrences of “household debt” in around 80 newspapers and journals Number of hits 2005-2013 400  400  350  350  300  300  250  250  200  200  150  150  100  100  50  50  0  0 05  06  07  08  09  10  11  12  13  Sources: TNS Sifo and the Riksbank  12  BIS central bankers’ speeches  Figure 5.
Camerer, C F (2003), “Behavioral Game Theory”, Princeton. Capie, F (2010), “The Bank of England: 1950s to 1979 (Studies in Macroeconomic History)”, Cambridge University Press. DeMiguel, V, Garlappi, L and Uppal, R (2007), “Optimal Versus Naive Diversification: How Inefficient is the 1/N Porfolio Strategy”, The Review of Financial Studies, 22 (5), pp 1915–1953. Demirguc-Kunt, A, Detragiache, E and Merrouche, O (2010), “Bank capital: lessons from the financial crisis“, Policy Research Working Paper Series 5473, World Bank. Dodd-Frank Wall Street Reform and Consumer Protection Act (2010), available at www.sec.gov/about/laws/wallstreetreform-cpa.pdf. Epstein, R (1995), “Simple Rules for a Complex World”, Harvard University Press. 20  BIS central bankers’ speeches  Estrella, A, Park, S and Peristiani, S (2000), “Capital ratios as predictors of bank failure”, Federal Reserve Bank of New York Economic Policy Review, Vol 6, No 2, pp 33–52. Federal Deposit Insurance Corporation (1984), “The First Fifty Years: A History of the FDIC, 1933–1983”, available at http://www.fdic.gov/bank/analytical/firstfifty/index.html. Financial Services Authority (2010), “Results of 2009 hypothetical portfolio exercise for sovereigns, banks and large corporations”, available at http://www.fsa.gov.uk/pubs/ international/sbc_hpe.pdf. Financial Services Committee (2010), “One year later: The consequences of the Dodd-Frank Act”. Fisher, R W (2011), “Taming the Too-Big-To-Fails: Will Dodd-Frank be the Ticket or is Lap-Band Surgery Required?”, available at http://dallasfed.org/news/speeches/fisher/ 2011/fs111115.cfm. Flannery, M J (2010), “Stabilizing Large Financial Institutions with Contingent Capital Certificates”, CAREFIN Research Paper, No. 04/2010. Friedman, M (1960), “A program for monetary stability”, Fordham University Press. Fuller, R L (2009), “Drifting towards mayhem: The bank crisis in the United States, 1930–1933”, Rayleigh, North Carolina.

(a)  (b)  34  Sample includes Bank of America, Barclays, Bank of Ireland, Citigroup, Goldman Sachs, HSBC, JP Morgan Chase & Co., Lloyds Banking Group, Morgan Stanley, National Australia Bank, Northern Rock, Royal Bank of Scotland and Santander. 2012 data to date. BIS central bankers’ speeches
BIS Review 105/1997  -4Within the CB’s foreign reserves, some positions are being held in the currencies of the countries which are candidates for monetary union membership. These positions consist of securities and money market placements. It is expected that security investments will be converted to the Euro as of January 1st, 1999. Money market placements on the other hand will continue to be transacted in their original currencies until July 1st, 2002. The fixing of the Deutsche Mark rate against Euro, the Euro’s value against other currencies in the international money markets and the depth and performance of the Euro bond market will be important factors in terms of our reserve management policy. In the Euro market, there will no longer be any cross-currency risk and cross currency-induced interest rate differential. However, it is possible that the country risk-induced differential will become more pronounced. Therefore investors must pay attention to which country’s security they are buying when investing in Euro-denominated securities. There are also issues which should be considered by the real sector. In particular those firms which are very active in trades across borders are likely to adopt the value of the Euro in their dealings rather quickly, because firms competing in European markets, in order to make comparison possible, should set their prices in Euro. As I have already mentioned, the CB and the commercial banks have to convert the foreign exchange denominated accounts into the Euro. This is not an easy task and involves changes in accounting systems and data processing.

It is estimated that the share of foreign trade of the Euro area will be only about 10% of GNP in comparison to about 30% for Germany today. And over the long term, the Euro should become almost as widely used as the US dollar is today. One conclusion to be inferred from this is the following: since Turkey has close trade, service and financial links with Europe, and as the only country connected to Europe in a Customs Union (CU), which I hope will evolve over time towards full membership, the EMU will create completely new conditions in Turkey’s international and European relations. Therefore what will happen in Europe will be decisive for Turkey in the years ahead. It will be a challenge for the Turkish authorities, as well as for bankers and businessmen. One of the most important prerequisites for a successful monetary union is a sufficient degree of economic convergence among the potential members. From that standpoint the degree of convergence among the EU countries is remarkable, particularly as regards the convergence criteria; stable prices, stable exchange rates, low long-term interest rates and healthy public finances. In addition to these criteria, the Maastricht Treaty requires that all member countries in the EU must grant independence to their central banks before the Monetary Union and the establishment of the European System of Central Banks (ESCB). The reason behind the requirement of independent national central banks is that fixing exchange rates and unifying currencies requires a common monetary policy.
However, as I shall set out later, the launch of the Next Generation EU (NGEU) European recovery fund, which was not taken into account in the aforementioned scenarios, given the still-high lack of specifics for key tenets of the programme, is a factor operating in the opposite direction. The NGEU fund is a significant reaffirmation of the European construction process. Spain, moreover, would be one of the Member States with potentially most to gain, given the comparatively more serious impact of COVID-19 on our economy to date and the high likelihood that its consequences will be more persistent. 2 The risks to financial stability The unprecedented impact of the pandemic on economic activity has entailed a very significant increase in the risks to global financial stability. The forceful economic policy response (by the monetary, fiscal and supervisory authorities) and the effect of the farreaching international financial reform implemented in the past decade are helping mitigate and manage these risks. Indeed, the financial system has been acting to date as a mitigating rather than an amplifying factor of the impact of this crisis. But we should not be complacent. As I have stressed, the scale of this shock is very great, and its duration uncertain. I shall now review how the main risks in this area have evolved recently, drawing on the analysis of the effect of the crisis on various agents in the economy: non-financial corporations, households, the real estate and financial sectors, and general government.

The debt-to-GDP ratio in 2020 is expected to grow by more than 20 pp under scenario 1 and by some 25 pp under scenario 2, up to 116.8% and 120.6% of GDP, respectively. High public debt also means future vulnerability. In the short term this risk has been mitigated: first by the measures taken by the ECB, which have prevented fragmentation of the euro area sovereign debt markets; and second by the European response, with the launch of mechanisms to jointly address the costs of the pandemic. However, if such a high level of public debt were to remain in place over time, the Spanish economy would be exposed to a situation of chronic vulnerability to changes in investor sentiment in the financial markets. For its part, the negative net international investment position of the Spanish economy and the foreign debt position have risen, in terms of GDP, as a consequence of valuation effects and of the fall in output. Specifically, in 2020 Q2, the negative net international investment position stood at 77.4% of GDP, 6.5 pp more than in Q1, influenced by the sharp contraction in output. The nation’s gross external debt rose by € billion in 2020 Q2, owing solely to valuation effects, to 188.1% of GDP, a record high. The high net liability position of the Spanish economy continues to be another factor of vulnerability, especially in the present setting of high uncertainty over future economic developments.
In the current cycle there are more households with an access to credit, also from the lower income deciles, indicating the spread of the effects of the potential slowdown to a wider part of the economy. The second risk factor I would like to point out is the price level of real estate. Real estate prices have recently surged globally, and also in the Baltic countries. The possible factors behind this increase include rapid and relatively widespread income growth, favorable borrowing conditions, and international demand. However, despite these surges, absolute levels of real estate prices remain still about two times lower in Tallinn than in Helsinki, in line with the difference of overall price levels. There are signs that prices are now stabilized in nominal terms and may have slightly decreased in real terms. Nevertheless, relative prices of real estate have increased dramatically. Whereas the ratio of price of a square meter to monthly wages is about one in Helsinki, it exceeds two in Tallinn. The expectations of real estate price convergence fuel credit demand in Baltic countries but imply ever-increasing risks to  BIS Review 81/2006  3  both borrowers and lenders. (It is fair to say, though, that the majority of real estate loans are used for buying homes, not for speculation.) The third factor I wanted to mention - currency mismatch - has caught some attention from international observers. The issue is more nuanced than the classical approach.

Instead, it is important to analyze the loan growth in broader economic policy context where due consideration should be paid to the credibility of macroeconomic policies and the impact other policies may have on the incentive structure in the financial markets. As I stated earlier, the presence of Nordic banks in the Baltic market is, of course, a hugely important positive factor. Parent banks are sometimes considered to have an implicit responsibility for the stability of the banking systems in the Baltic countries. It is said that the Baltic banks are too small to fail. International experience lends support to this view, although the evidence is not always in one way. Hence, there are also potential risks. If parent banks are active in many countries of the region, a shock affecting exposure in one country may lead to a reduction in their exposure across the region. Build-up of exposures to common risk factors in a region may also increase the potential for contagion - a reduction in lending to countries not affected by a crisis. The potential for contagion is naturally higher in highly integrated economies. Another potential risk factor is the smallness of the banks in the Baltics combined with their high profitability. While the Nordic banks have high profitability in all of their markets, profitability in the Baltic market is especially high. As a result, the share of banking groups' assets in the Baltics is significantly lower than the share of profits banks make in this region.
Monetary policy: containing inflation in a restructuring economy Let me start with monetary policy framework. I will cover two areas: •  First, the continued relevance of the exchange rate in our monetary policy framework. •  Second, the calibration of monetary policy responses within this framework. Relevance of exchange rate as the instrument of monetary policy MAS’ exchange rate-centred monetary policy framework was formalised in the early 1980s. While other central banks sought to control money supply or interest rates, MAS has chosen to focus instead on the exchange rate as its monetary policy tool to keep inflation in check. The exchange rate-centred framework has served Singapore very well for over three decades. As I mentioned earlier, Singapore has had one of the best inflation records in the world despite enjoying one of the fastest rates of economic growth. BIS central bankers’ speeches  3  Let us quickly recall why the exchange rate is MAS’ chosen tool of monetary policy. Singapore is a small and extremely open economy. Total exports and imports of goods are each well in excess of 100% of GDP. •  Imports make up 40% of domestic consumption; the exchange rate is thus a powerful tool to moderate the impact of foreign price changes on domestic inflation. •  Exports are the chief driver of economic growth; and the exchange rate, as a key factor affecting export demand, is thus also an effective means for managing aggregate demand and hence overall inflationary pressures.

Shanghai could tap on Singapore’s role as a regional infrastructure-financing hub in ASEAN to jointly access infrastructure opportunities in the region. Additionally, both financial centres can work together to develop innovative capital market solutions for infrastructure projects in China, ASEAN and in third countries. Key financial institutions in China are already working closely with Singapore on this front. 4/7  BIS central bankers' speeches  They have significantly scaled up their BRI-related activities in Singapore over the past two years. China and Singapore financial institutions are tapping on each other’s strengths to help Chinese firms “go out”. For example: In June 2015, Bank of China (BOC) issued four currency “Silk Road” bonds in Singapore, which included a SGD 500 million tranche and a RMB 5 billion tranche. In August 2016, China Construction Bank (CCB) listed its first RMB 1 billion BRI infrastructure bond on the Singapore Exchange (SGX). In September 2016, Industrial and Commercial Bank of China (ICBC) signed an agreement with the Singapore Exchange (SGX) to support Chinese companies looking to list equities or bonds on SGX. Both parties will also explore collaboration in derivatives trading, bond trading and market making of RMB-denominated contracts listed on SGX. Since November 2015, three of China’s top four banks (ICBC, CCB and BOC) have signed MOUs with International Enterprise Singapore to deepen BRI partnerships in ASEAN. These MOUs brought in more than SGD 90 billion worth of financing for BRIrelated projects and to support Chinese and Singapore firms investing into BRI countries.
I am indebted to the Secretariat of the Basle Committee, the staff of the BIS, as well as to my colleagues at the Bank of Spain, for choosing speakers who will encourage a lively conversation on these two themes. In my own remarks this morning, I would like to open with some thoughts first on the implications of “Basel II” for banking supervision worldwide. While much has been said about its sophistication, I believe that many have overlooked key principles in Basel II that are relevant to all supervisors and all banks in all markets. In that regard, it is important to remember that Basel II’s success depends on a broad range of other preparations and measures that we undertake to strengthen safety and soundness; in the second part of my remarks, I will offer some views on the other mechanisms, that lie at the heart of a sound system of supervision more generally. As I will mention, many of our safety and soundness goals are more easily achieved when supervisors apply these mechanisms more consistently: this makes it critical for the Basel Committee to continue to expand its ties and seek greater cooperation with the broader supervisory community. Finally, I would like to close with some brief thoughts on the rules that govern transparency and disclosure in our jurisdictions and on our responsibilities as supervisors to encourage their continued advancement. With that overview, I would like to share some thoughts on the implications of Basel II for supervision, which is my first topic. 2.

Table 2 Short and long interest rates in the UK Short rate  Long rate  Mean  St. dev  Mean  St. dev  1950-1959  2.87  1.67  4.40  0.88  1960-1969  5.51  1.31  6.58  1.07  1970-1979  8.92  2.81  11.94  2.41  1980-1992  11.28  2.23  10.83  1.88  1993-2002  5.58  0.88  6.38  1.59  1950-2002  7.09  3.59  8.19  3.32  Note: Short rates are three-month treasury bill yields. Long rates are 20-year gilt yields. Data are monthly, and use the rate at the close of the last business day of the month. Data up to September 2002. Source: Global Financial Data, Inc.; Bank of England calculations. BIS Review 68/2002  3  Chart 2 Total inflation premium expected in ten years time, UK 1997  Note: The total inflation premium is measured as the difference between implied forward nominal rates on conventional gilts ten years hence and implied real rates on index-linked gilts ten years hence. Source: Bank of England. So price stability appears to have led to a more stable macro economic environment, with fewer surprises to inflation, less inflation uncertainty, and a lower level of real interest rates. Has this improved nominal performance led to greater stability of the real economy? Table 3 shows that since 1992, output has grown at a little above its forty year average, and has been much more stable than before.