samchain/econo-pairs-v1 huggingface dataset:
Ladies and Gentlemen, In this context, from an emerging market perspective, the question, therefore, goes way beyond just how to cope with the current turmoil, but reaches deep down into the direction of market development over the medium to longer term as well. Within the realm of central banks, for example, the traditional science of monetary policy has so far been based on the idea that the central bank’s objective should be to maximize the economic well-being of the people in the country by minimizing the deviations of inflation from its optimal rate and the deviations of real economic activity from its so-called natural growth path. However, today it is clear that the central bank’s role in fostering financial stability is essential and this role will become more prominent in the world of increasing financial integration. Experiences of the recent crises indicate that monitoring financial imbalances is crucial in preventing financial turmoil from occurring. It has long been recognized that a weak financial system undermines the efficacy of monetary policy measures and can overburden the monetary authorities. For this reason, it may be desirable for prudential policy frameworks to be strengthened, thereby addressing the build-up and unwinding of the imbalances more effectively. In this context, the Bank of Thailand has also monitored seven areas of financial imbalances, including those in the financial market, real estate, household and corporate sectors on a regular basis.

FORECASTS FOR THE SPANISH ECONOMY: BUDGET DEFICIT  CHART 4  GENERAL GOVERNMENT BALANCE  0  % of GDP  Projections  -1 -2 -3 -4 -5 2016  2017  2018  2019  SOURCES: IGAE and Banco de España. The projections report published in December also included a forecast of the Spanish general government deficit for 2019, consistent with the macroeconomic and financial picture I have just described, with the deficit then being estimated at 2.4% of GDP (see Chart 4). Nonetheless, as indicated in the report, this estimate was subject to greater than usual uncertainty, as a result of the indefiniteness surrounding the budgetary cycle at the information cut-off date for the exercise, in late November. In particular, at that time neither the Draft Budget for 2019 nor the plans for the creation of the new taxes announced in the October 2018 draft budgetary plan had been submitted to Parliament, meaning that uncertainty over the scope and details of the new measures persisted. Consequently, the assumptions for budgetary policy in 2019 did not include these new measures.
The EU also has an internally motivated incentive to address its economic weaknesses if it aims to preserve many of the core social values which lie at the heart of the European integration project. In light of the prevailing European demographics, welfare reforms are imperative. In the end, however, the core values of the European social model can only be maintained for future generations if Europe’s growth potential is augmented. I would like to begin by briefly addressing a number of measurement issues that need to be kept in mind when comparing Europe’s economic performance with that of the United States. I will then address the underlying cause of Europe’s economic weakness, namely its potential growth rate with a specific focus on the all important measure of productivity growth. Finally, I will venture outside of the traditional domain of a central banker’s portfolio and offer some tentative conclusions as to where the main EU economic policy challenges will likely lie in the years ahead. GDP growth differences EU – U.S. As you can see in Graph 1, real GDP growth in the U.S. has consistently outperformed growth in the European Union since the early 1990s. Between 1995 and 2003, real annual GDP growth in the U.S. has averaged 3.3% compared to 2.2% in the EU-13. This sustained growth gap suggests that there is a structural dimension to the seemingly cyclical question of why the EU recovery is so weak.

Much as it did in 1994 in the U.S., the hard part lies ahead. Appendix Graph 1 Average Annual GDP Growth Rates 0  1  2  3  4  5  6  7  8  9 [%]  France Germany Ireland Italy Japan Korea Spain Switzerland United Kingdom United States  1970-1980 1980-1990 1990-1995 1995-2003  EU-13 (EU-15 excl. Austria and Luxembourg)  Source: OECD, Productivity Database, February 2005. 4  BIS Review 27/2005  Graph 2 Average Annual Growth Rate of Labour Input: EU-13 vs. U.S. [%] 1.5  1.0  0.5  0.0  -0.5 1990-1995  1995-2003  -1.0 EU-13 (EU-15 excluding Aust ria and Luxembourg)  Unit ed St at es  Source: OECD, Productivity Database, February 2005. Graph 3 Growth of Labour Productivity: EU vs. U.S. 4.0% EU - U.S.  U.S.  EU  3.0%  2.0%  1.0%  0.0%  -1.0%  -2.0%  -3.0% 95  96  97  98  99  00  01  02  03  04  05  Source: Datastream (OECD Economic Outlook). BIS Review 27/2005  5  Graph 4 Average Annual Growth Rates of Labour Productivity: EU vs. U.S.  [%] 4 3 2 1 0 EU-11 U.S. EU-11 minus U.S.  -1 -2 1970-80  1980-90  1990-95  1995-2000  2001-2003  Source: OECD, Productivity Database, February 2005. 6  BIS Review 27/2005
And say that the standard households are affected by this and must therefore take on a larger share of unsecured loans at an interest rate of 6 per cent and moreover pay off the unsecured loan over 10 years. This would entail increased interest expenditure corresponding to between 0.4 and 1 per cent of disposable income, and amortisation corresponding to between 2.8 and 7 percent of disposable income. The total increase in expenditure in this example thus corresponds to between 3.2 and 8 per cent of disposable income. This is comparable with how much household expenditure would increase if the mortgage rate instead increased by just over 1.9 percentage points. Amortisation as a form of saving Many of you will know that regulations of this type have often been circumvented in various ways. One way for the banks to make the mortgage cap less binding for their customers and enable them to take on more loans, for instance, is not to require amortisation on first loans. When it comes to amortisation culture, we in Sweden differ quite substantially from what seems to be common in many other countries. In Sweden, around 40 per cent do not amortise at all. Of those who do, a good 40 per cent do it in such a way that it will take 50 years or more before they are free of debt.

Stefan Ingves: Monetary policy and financial stability in a globalised world Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, at the Stockholm School of Economics, organised by the Swedish Economic Association, Stockholm, 28 May 2014. *  *  *  Thank you for inviting me. This meeting at the Swedish Economics Association is one of relatively few occasions during the year when I have the opportunity to discuss rather more academic questions that I personally find interesting, but which there may not always be time to consider. At present, however, I am struggling in my day-to-day work with a number of issues where better research support is needed, so today I would like to raise both very concrete issues that are currently on the economic policy agenda, and more theoretical questions about the shaping of the policy. There is an overall theme in what I intend to say today, and that is “cooperation”. I will talk about cooperation between different authorities and policy areas in Sweden as well as cooperation at an international level. One reason why I have chosen to put a certain focus on cooperation is that I perceive that it has become increasingly difficult, or at least more complicated, to conduct a completely independent policy – partly because of the boundaries between the different policy areas having become less clear, and partly because of individual countries being affected perhaps more than ever by international events.
NBRM cannot require those banks to increase lending, but we undertake everything we can to prevent a reduction in their loan  2  BIS central bankers’ speeches  portfolios. Obviously, this is another area where we have a spillover of the negative developments in the Euro area into our economy. What will be the credit growth this year, and what do you expect it to be next year? The estimate for this year is about 7 percent, and for the next year it is somewhat higher. In which direction will the interest rates on loans and deposits move next year? The downward trend is likely to continue, although at a slower pace. The European Central Bank reduced the basic interest rate to 0.75 percent in order to stimulate the economic growth. The National Bank of the Republic of Macedonia maintains it at 3.75 percent. Why not reducing it down to 1 percent in our country, too, which will reduce the interest rates on loans as well? In a highly euroized economy as the Macedonian, it is necessary to motivate economic agents to demand Denars, not Euros. Therefore, interest rate parity on Denars and Euros must be kept at an appropriate level that stimulates the demand for Denars. In the last three years we have reduced that parity from 8 percent to only 3 percent. Further reduction is a process that depends on the resilience of the economy.

While it is admittedly difficult to forecast developments in the short term, there are some research results that can be used as a starting point for assessing developments further ahead. The Riksbank’s forecasts have primarily been based on these results. 20 Nominal and real exchange rates While the nominal exchange rate shows the number of Swedish kronor per unit of foreign currency, the real exchange rate shows the relationship between Swedish and foreign price levels. Put simply, one can say that the real exchange rate shows how much a given basket of goods costs in Sweden in relation to abroad when the price of the basket of goods is expressed in the same currency. The real exchange rate can change either through the nominal exchange rate changing or by inflation differing between countries. A stronger krona real exchange rate can thus be attained either through a stronger nominal exchange rate or through a faster increase in the price level in Sweden than in other countries. We can use the Economist’s Big Mac index as an example. This index shows how much a Big Mac costs in different countries in the same currency. In 2001 the krona exchange rate against the dollar was at its weakest level so far and oscillated between 10 and 11 kronor. In the United States a Big Mac then cost 2.60 dollars, which corresponded to 26.70 kronor. In Sweden a Big Mac cost 24 kronor.
Can households pay for consumer goods with debit cards, cheques or credit cards, or do they have to carry significant amounts of cash with them? Can workers in urban areas transfer money to their rural families by simply sending an SMS, or do they have to carry it with them on a dangerous bus ride? Particularly in Africa, where distances are vast and security is often a concern, the availability of non-cash payment instruments can increase the returns to economic activity for businesses and households. Figure 3 shows that today, most economies in Africa are still strongly cash based. Both in sub-Saharan and northern Africa, more than one-third of funds available for immediate payments are in cash form. The notable exception is South Africa where the level of non-cash money is above 80%, and thus similar to that of Switzerland. Developments over the past 15 years show a promising picture for other countries on the continent as well. Since 1995, the share of non-cash money has increased from 50 to 60 percent in sub-Saharan Africa, and 55 to 65 percent in North Africa. This mirrors the increased availability of electronic payment instruments available to businesses, but also to households.

For this purpose, it will be important for the banks to build on their strengths and minimise their weaknesses. With regard to the former, our banks start from a relatively strong position since their fundamentals have not been weakened by the financial crisis. The existence of a sound regulatory system, effective risk management practices and prudent lending policies have combined to minimise the banks’ exposure to bad or dubiously-valued assets. Investment portfolios are in fact highly diversified, with minimal holdings of asset-backed securities, while the domestically-oriented banks’ measured approach to credit is reflected in loan-to-deposit and residential loan-to-value ratios that average around 79% and 73%, respectively. One of the lessons learned from the crisis is that a bank’s funding model is crucial. The reliance by a number of international banks on wholesale funding proved to be a major source of weakness in time of stress. In contrast, Maltese banks have traditionally relied on retail deposits to fund their lending operations, a source of liquidity that has proved more reliable. This explains the banks’ high liquidity ratios, currently averaging 46%. The steady supply of liquidity, combined with a sustained demand, have permitted the credit channel to remain intact, despite the ongoing global turmoil. As a matter of fact, bank lending to the private sector grew by 9.7% in the twelve months to April 2009, compared with 8.7% in the preceding twelve months. Another lesson concerns the importance of a strong capital base.
Gas production is expected to continue to increase in the years ahead, and will account for a growing proportion of total petroleum production. The long-term forecasts for oil and gas extraction are highly uncertain, and future price movements for oil, market opportunities for gas and production and extraction costs in the petroleum sector are shrouded in uncertainty. 1  BIS Review 105/2000  The revenues from the petroleum sector are of great significance to the Norwegian economy as a whole, and to the public sector in particular. In the 1990s, the export value of oil accounted for roughly one third of total exports excluding ships and oil rigs. Government revenues from petroleum activities are currently extremely high, due to high oil prices coupled with high production volumes. Current projections indicate that petroleum revenues will peak in 2002, and thereafter decline in pace with the production volume and lower oil prices. BIS Review 105/2000  2  Government revenues from petroleum activities have contributed to substantial government budget surpluses in recent years. As can be seen from the chart, considerable surpluses are also expected in the next few years. The amount of petroleum revenues used to finance public expenditure varies from one year to the next. A large portion of the revenues is saved, and is invested in foreign equities and bonds through the Government Petroleum Fund.

A fixed exchange rate means that the central bank, with the aid of currency market interventions or its policy rate, stabilises the exchange rate around a target, e.g. a price for the dollar, gold or an average of currencies, whereas under a floating exchange rate regime the exchange rate is determined by supply and demand in the currency market. With a fixed exchange rate, you avoid some of the uncertainty in world trade when countries exchange currencies with each other. There is a limit to how much a currency’s exchange rate can vary, which is good for importers and exporters when they are forecasting income and expenditure. The fixed exchange rate can also be seen as a way to achieve price stability. With a fixed exchange rate, inflation in the long term cannot be higher or lower than the inflation rates in the countries with which you have tied your exchange rate. For example, a fixed exchange rate against the dollar would ”force” us to maintain the same inflation rate in the long run as the US and the other countries whose currencies are pegged to the dollar. Were that to fail, our current account balance would deteriorate and we would have to devalue. BIS Review 84/2005  1  Sweden devalued five times between 1976 and 1982 under a fixed exchange rate (1976, twice in 1977, 1981 and 1982). That was because Sweden in the 1970s and 1980s had higher inflation than the other countries.
A necessary condition, in my view, is for faultlines to exist within the financial system itself – and the deeper they run, the greater will be the threat to stability. The identification and mitigation of such faultlines requires engagement with the details of the system. Those who argue that it is all down to global imbalances and that we did not need to know about leverage via CDOs and the shadow banking system and so on are equally wrong. But the scale of the macroeconomic imbalances that were allowed to accumulate surely raised the bar for resilience of the financial system, and probably beyond what was reasonable. We need to quit pointing the finger, alternatively, at global macroeconomic and financial system causes, and accept that it was both. The Turner Report does that. A few points on micro regulation The Report and accompanying FSA Discussion Paper’s principal focus is, of course, micro regulation. I have just three points to add or emphasise on that this morning. Effective prudential supervision of individual firms relies on the line supervisors being prepared to substitute their views for those of management when they have good reason to believe that the viability or stability of a bank otherwise may be in peril. They need the confidence, when necessary, to face down management, and even boards; and also to be prepared to take the risk of being overruled on appeal.

The Swedish krona also strengthened during the period 2010–2013. This meant that import prices measured in Swedish krona fell, and thus also Swedish consumer prices. However, during 2014 the krona weakened, which instead led to higher prices. Finally, there is a technical factor that is important for inflation as measured in terms of the consumer price index, CPI. When the Riksbank cuts the repo rate to bring up inflation, the immediate effect is the opposite. Households’ mortgage interest expenditure, and thus the CPI, then fall. There is an alternative measure of inflation, the CPIF, which is based on a constant interest rate and therefore not affected by the Riksbank’s repo rate cuts. Many often follow the CPIF instead of the CPI, particularly during periods when the repo rate changes a lot. Inflation expectations indicate confidence in the inflation target It is important that the inflation target is credible. And it becomes credible when the economic agents expect inflation to return to the target following deviations. It is primarily the long-term inflation expectations that indicate confidence in the inflation target. Central economic agents are regularly asked how high they expect inflation to be in the coming years. Figure 5 shows how inflation expectations two and five years ahead have developed since 2010. Initially, expectations five years ahead were actually above the inflation target of 2 per cent. However, during 2014 there was a change, when the five-year expectations fell below the level of 2 per cent.
Since the discontinuation of the minimum exchange rate, the SNB’s monetary policy has been based on two pillars, which are designed to mitigate upward pressure on the Swiss franc and to ensure price stability over the medium term. The first pillar is the negative interest rate on sight deposits at the SNB. The second pillar is our willingness to intervene on the foreign exchange market as required. These two pillars are complementary and mutually reinforcing policy instruments. BIS central bankers’ speeches  1  The negative interest rate The negative interest rate applies to sight deposits above a certain threshold, held by banks and other financial market participants at the SNB. This threshold was introduced to limit the financial burden on banks. It was set at 20 times the minimum reserve requirements. By linking the threshold to the statutory minimum reserve requirement, the SNB adopted a measure that is both firmly anchored in law and for which clear rules exist. For depositors that are not subject to minimum reserve requirements, a fixed exemption threshold of at least CHF 10 million has been set. The thresholds imply that banks which hold large sight deposits relative to their minimum reserve requirements are affected most by the negative interest rate. Thus, like any other monetary policy measure, the negative interest rate affects different market participants differently.

In the market for private sector bonds, interest rates fell as well, but not by as much as government bond yields, reflecting the greater substitution opportunities for corporate bond investors. While the introduction of the negative interest rate caused interest rates on the money and capital markets to decline, mortgage rates did not decrease to the same extent. Indeed, for long-term mortgages, interest rates are slightly higher than they were at the beginning of the year. This is because banks’ refinancing costs have not fallen to the same extent as money market interest rates. As a result, banks’ interest margins have come under pressure. 1 To partially offset this effect, banks have raised their mortgage interest rates. As yet, therefore, fears that the negative interest rate might contribute to stronger growth in mortgage lending have proved unfounded. 1  This affects the banks’ “liability margin”, which is the difference between the interest on maturity-matched alternative funding sources and the interest on deposits. BIS central bankers’ speeches  3  The Swiss economy in a difficult environment So far, I have spoken mainly about exchange rates and interest rates – that is, monetary conditions in the Swiss economy. I would now like to turn to the real economy. Switzerland is a relatively small open economy. 2 In general, this means that international developments matter a lot to Switzerland. However, during the global recession of 2009 and the sluggish recovery that followed, the Swiss economy proved to be surprisingly resilient.