samchain/econo-pairs-v1 huggingface dataset:
A further important similarity between the emerging market experience and that of the peripheral euro area countries is that the external debt is denominated in a currency which the national authorities do not completely control. In emerging markets, so-called “original sin” – that is, a lack of credibility created by poor macroeconomic discipline in the past – implied that external debt was overwhelmingly denominated in US dollars. 8 In the euro area, debt is denominated in euros. Although this is obviously the currency of euro area countries, the single monetary policy aims at price stability across the euro area and thus cannot take account of national priorities deriving from fiscal or financial weaknesses in peripheral countries. By implication, neither in the emerging markets nor in the euro area periphery can the real value of the external debt burden be eroded by inflation or devaluation. Any attempt to devalue would simply raise the domestic burden of the external debt. Of course, this was precisely the point: by issuing debt in a currency which they could not control, the national authorities in the euro area “tied their own hands”. Before the crisis, they obtained a credibility gain that would lower overall funding costs and thus reduced the probability of a crisis. But when a crisis occurs, the external value of the debt burden cannot be reduced by devaluation. Differences between euro area and EME experiences While many of the experiences of the euro area periphery and the EMEs are similar, there are also important differences.

They did not have to make too much of a fuss about money laundering. They did not spend expensive professional time and money on compliance tests. They did not have to deal with 24 x 7 media reports. The list goes on. Some even had ready access to the natural and human resources of other countries, which they ruled. But today, many low-income countries, despite their potential to grow are functioning in an “international environment” that is “controlling” almost all economic activities. Accordingly, they are seriously constrained by these stringent benchmarks, however wonderful they may be, which from a rapid development point of view, poses serious and continuous challenges. For example, at a time when these countries are desperately attempting to break free from the poverty trap, the allocation of resources to them by way of aid inflows by wealthy nations have been reducing. In fact, the net official resource inflows to developing countries were negative in 2005 and projected to remain negative in the next few years as well. In the meantime, although the Commonwealth group supported the Doha Declaration of WTO and were moving towards the direction of freest possible flow of multilateral trade on terms fair and equitable to all, while taking account of the special requirements of developing countries, the current multilateral trade negotiations have not been moving in the right direction.
But the sub-prime mortgage market did not stand alone, and various events directly or indirectly related to it delayed expectations of a recovery, and the new lines of defence were drawn at the beginning of the year and in the weeks that followed. According to the Utopians, when annual results began to show after the first of the year and the genuinely positive state of events was revealed, the phantom problem would wash away on the outgoing tide. There is the danger that those who placed their trust in such a beneficent outcome used their time far less well than they should have from August 2007 onward. The CEO of one of the largest banks in the world said, “While the band plays, we dance.” He was forced to resign shortly thereafter, when the bank demonstrated a shocking operating loss, but with a fat fund in his pockets as a reward for his foresight and progressive thinking. For similar reasons, many will have more difficulty waiting for better times. Of course, it is far from inconceivable that strong gusts of wind could come from any direction, dispersing pitch-black storm clouds in a moment’s time, bringing leveraged buyouts of heavily indebted companies under the aegis of credit institutions offering minimum terms and slick collateral, and bright, sunny morning would smile on markets in Iceland and elsewhere.

As regards the economy and the financial markets in particular, the season has been harsh and often stormy, and now, on March 28th, when the vernal equinox is past and the days are lengthening visibly with every week that passes, there are few signs that spring is near for the economy. And despite the fact that this rather pessimistic statement is anything but an exaggeration, it is surprising to realise how many people are still convinced that things have seldom been better than they are now, and that Icelanders are enjoying boom times in most respects. But is this really as astounding as it might seem at first? Our employment levels are very high, excess demand for labour is considerable, public access to credit institutions has been subject to few limitations until very recently, and though credit has not exactly been cheap, terms have not been as unfavourable as one might expect, thanks to high levels of employment and rising disposable income. The Treasury has been operated with an acceptable surplus and is well able to meet the demands made of it. As a result, there is considerable pressure to increase government expenditure, though neither the labour market nor other economic conditions have yet required such increases. The government must be steadfast in resisting the pressure to increase expenditure at a time when it cannot honestly be said that the money doesn’t exist.
BIS central bankers’ speeches  3  In any event, perseverance is necessary in correcting the imbalances that are a legacy of the crisis, in particular high unemployment and our sizeable international debit position. To this end, it is essential to maintain gains in competitiveness and contain indebtedness. Our rebalancing efforts were against an adverse backdrop, as a result of the severe recession affecting the Spanish economy between 2009 and the first half of 2013. We have not to overstate our economic policy leeway, or jeopardise fiscal consolidation, which should remain a guiding principle. Thank you very much. 4  BIS central bankers’ speeches

BIS central bankers’ speeches  5  The National Institute of Economic Research’s Economic Tendency Surveys, which summarise companies’ and households’ views of the Swedish economy, rose in July, see Figure 11. This is the third month in a row that the indicator exceeds the historical average and thus points to a somewhat stronger growth than normal in the Swedish economy. Households’ confidence in the economy as a whole slowed down further in July, although the view of their own economy is still more positive than normal. Inflation expectations according to money market participants in Prospera’s survey 1, 2, and 5 years ahead have remained broadly unchanged during the summer. Long-run inflation expectations 5 years ahead remain at around 1.8 per cent. CPIF inflation was measured at 0.6 per cent in June and at 0.9 per cent in July, see Figure 12. The outcome in June was lower than our forecast. It is difficult to point to any individual component that contributed to the forecasting error – goods prices services prices and food prices all increased somewhat slower than expected. The outcome in July, on the other hand, was higher than our forecast. It was in particular the volatile air travel and package holidays that were higher than anticipated, although food and clothing prices were higher than expected. All in all, the outcomes over the summer have been in line with our forecasts.
If the deficit were left unchanged at this year’s expected level of Lm95 million, it is estimated that debt service costs would rise from Lm85 million today to almost Lm120 million by 2010. In other words, the Government would have to register a surplus on its recurrent operations and borrow money just to service the debt. This unsustainable situation is a symptom of another feature of our economy, the high level of government expenditure. At 51% of GDP, this is the sixth highest in the EU. Government, moreover, employs 27% of the labour force, which is somewhat higher than the EU average, while the entire public sector absorbs over one-third of Malta’s labour supply. This is not to say that nothing has been done. Fiscal consolidation and structural reform have indeed in recent years become key features of the Government’s drive to enhance the productive potential of the economy. This awareness is reflected in the Convergence Programme, which targets a fiscal deficit of 1.4% of GDP by 2007, compared to 5.3% this year. This improvement is to be attained mainly through a reduction of about six percentage points, to 44%, in the ratio of government expenditure to GDP. What does this target mean in terms of the savings that need to be made? During the past five years government expenditure has been increasing by an annual average of Lm55 million. At this rate, it would exceed Lm1.1 billion in 2007. But the total contemplated in the Convergence Programme for that year is about Lm950 million.

Generating an expansion in net exports in order to counterbalance the necessary increase in savings and to offset any reduction in the demand for financial services exports then requires a real depreciation of the currency. This was achieved by a fall of a quarter in the trade-weighted value of the nominal sterling exchange rate between the start of the crisis and the end of 20081. Although the impact of this depreciation on net exports initially seemed rather disappointing, recent revised data from the ONS now suggest that the impact on net exports has been roughly in line with that seen after previous large movements in the exchange rate (Chart 4). The third force is the loss in output and income associated with the financial crisis. Output presently lies almost 15 per cent below where it would have been if it had continued to grow in line with its pre-crisis trend. Even if that shortfall does not prove to be permanent, the  1  It is worth emphasising that the bulk of this fall occurred before the MPC cut Bank Rate sharply in the wake of the collapse of Lehman Brothers and subsequently embarked on quantitative easing. It cannot therefore be attributed to lax monetary policy. Sterling has been broadly stable since the beginning of 2009.
Various adjustments to this set-up might reduce some partial imbalances, but if the cause of the problem is not tackled head on, the effects of such adjustments will be short-lived and it will only be a matter of time before the whole system comes crashing down. Now let’s move forward in time some 20 years, to the split of the Czechoslovak currency following the dissolution of Czechoslovakia in 1993. For many years, fiscal transfers had masked the significantly inferior performance of Slovak economy relative to its Czech neighbour to the west. This performance gap was further widened by the closing-off of the Slovak armament industry from the federal centre at the beginning of the 1990s. After the country split in two, the stated goal of keeping a common currency came under market pressures as Czech and Slovak entities transferred their deposits to Czech banks and capital flowed out of both countries. As a result, this goal was abandoned in less than two months and an independent Czech crown – or koruna – was introduced. I should add that the CNB had its plan B and had been running preparations for the currency split since the second half of 1992. Consequently, after it had decided to act, it was able to act fast. So, what lessons can we learn from this event? The lack of political will to preserve the federal Czechoslovak state had quickly recognisable consequences for the common currency.

As a result, the costs of the event were relatively low and order was quickly restored in both new currency markets. Despite the U-turn in decision-makers’ communication, the situation had been easy to read by markets, citizens and economic agents in general. A few years later, the Czech economy was hit by a severe currency and financial crisis. Until 1996, the Czech Republic maintained a fixed exchange rate regime and generally stabilisation-oriented (restrictive) macroeconomic policies. However, entry to the OECD and related capital flow liberalisation created an Impossible Triangle. This led to twin deficits and attempts to “half-free” the exchange rate regime similar to those made in the Bretton Woods case. Additional factors such as data errors and an insufficiently credible first reform package only exacerbated the problems. Serious worries of the Czech National Bank about its credibility and reputation contributed to its mistakes. A change of government made acts of government less predictable. The defence of the exchange rate was ended by the central bank without the knowledge of the government. This caused a wide rift to open up between these two authorities. A general lack of coordination of macroeconomic policies, and possibly too restrictive monetary policies, culminated in a severe financial crisis. The outcome was a very costly event that could, with the benefit of hindsight, be judged as avoidable to a significant extent. General U-turns made by policy authorities contributed to these high costs.
Steering interest rates were cut all around the world, including in Sweden. Nevertheless, inflation continued to rise. A cold winter in Europe, problems with the Swedish apple harvest and poor fishing catches led to rising prices on fruit, vegetables and fish during the autumn. It is obviously easy to get caught up with details and fail to see the underlying changes. However, we could see even more clearly that the rise in inflation was not merely due to transitory factors, but entailed a broad rise primarily in domestic prices. This could be connected with the fact that secondary effects from the higher energy and food prices had made a greater impact in the consumer channel. Another important factor was that wage growth, despite the weaker development in demand, became even more problematic. Within many industries, for instance, construction, retail trade, banking and insurance, as well as the public sector, wages rose considerably during 2001. At the end of 2001/beginning of 2002, there were signals from confidence indicators that economic activity might have reached its lowest level in the USA and also Sweden and some optimism regarding the future began to spread. The effects of the terrorist attacks appear to have been limited, although some sectors were hit very hard. To sum up, we can conclude with the aid of this slide (OH 1 The Riksbank’s forecasts for GDP 1999-2003) that the year 2001 entailed constant downward adjustments in the growth forecasts.

Villy Bergström: Forecasts and business cycles Speech by Mr Villy Bergström; Deputy Governor of Sveriges Riksbank, to the Elmateriel Leverantörernas förening (Association of Swedish Electrical Installation Material), Stockholm, 15 May 2002. *  *  *  Monetary policy no exact science During the 1990s many central banks formulated explicit targets for their monetary policy. Sveriges Riksbank formulated its target in 1993 as an annual inflation rate, measured according to the consumer price index (CPI) of two per cent with a tolerated deviation interval of +/- 1 percentage points. Deviations from the target level are the rule rather than the exception. Monetary policy is not an exact science and society is not a machine; it would be neither possible nor desirable to keep inflation at a precise level, particularly not in the short term. In recent years the Swedish economy has been subjected to relatively large disturbances. On the international front, both the Asia crisis and the Russia crisis, as well as severe fluctuations on the stock markets and in oil prices, have had an effect on us. In Sweden, the rise and fall of the IT sector, as well as deregulation of the electricity and telecommunications markets with ensuing price falls, have affected both prices and production. Such crises and changes of policy can rarely be predicted. This means that the Riksbank will always make “mistakes”, with the benefit of hindsight. However, this is self-evident and not particularly valid when assessing monetary policy.
9  VOLATILITY IN THE VALUE OF THE SOVEREIGN WEALTH FUND MUST BE TAKEN INTO CONSIDERATION  NORGES BANK ECONOMIC PERSPECTIVES 17 FEBRUARY 2022  Alongside its central banking tasks, Norges Bank has another important mission, namely the management of Norway’s sovereign wealth held in the Government Pension Fund Global (GPFG). Since the first capital transfer in May 1996, the GPFG has grown larger than anyone had imagined (Chart 9). And the investments have paid off handsomely. Cumulatively over the entire period, we have now earned more on investments abroad than the transfers to the GPFG. We have more than doubled our money. Chart 9 The money is more than doubled GPFG. In billions of NOK 16000  16000  12000  12000  8000  8000  4000  4000  Total value Deposits Returns Petroleum revenue spending Exchange rate  0  0 –4000  –4000 1998  2001  2004  2007  2010  2013  2016  2019  Sources: Ministry of Finance and Norges Bank  The fiscal rule ties petroleum revenue spending to the value of the GPFG. As its value has increased sharply, petroleum revenue spending has followed suit (Chart 10). In the years prior to the pandemic, one krone in six of government expenditure was covered by the GPFG. Chart 10 The GPFG finances a large portion of government expenditure Structural non-oil deficit as a share of government expenditure.

But if severe shocks hit the economy, other areas of economic policy must play a key role. When the pandemic hit Norway, we cut the policy rate to zero. At the same time, fiscal support measures were implemented on a scale unprecedented in modern Norwegian history. The aim was to cushion the downturn and support households’ and firms’ income. Chart 6 Economic downturns are countered by rate cuts Norges Bank policy rate. Percent 1.75  1.75  1.5  1.5  1.25  1.25  1  1  0.75  0.75  0.5  0.5  0.25  0.25  0  0  –0.25  2015  2016  2017  2018  2019  2020  2021  2022  –0.25  Source: Norges Bank  The actions taken could not, however, prevent a situation where a large number of workers were suddenly out of work. The risk that the pandemic would leave lasting scars on the labour market was an important reason why we kept the policy rate at a historically low level for more than a year. Now that we can look at the years 2020 and 2021 in the rear view mirror, we can see that employment in Norway picked up more quickly than expected (Chart 7). Employment exceeded the pre-pandemic level in autumn 2021, and the same degree of monetary policy stimulus was no longer needed. We have now raised the policy rate twice, and we have signalled a further rise.
So one very important lesson in this is that traditional indicators of the business cycle cannot be relied upon to flash warning lights about vulnerabilities building up in the financial system. Where did the money go? If the total amount of UK private credit in the economy rose sharply in the 10 years before the crisis without much impact on private sector demand or the economy as a whole, where did the money go? Some went to business – around a third, much of it to commercial real estate. But the bulk, around two-thirds of the credit, was to households (Chart 3). Bank lending to households made a particularly large contribution to credit growth in the first half of the 2000s. And while unsecured lending grew strongly over the period, it only comprised about 10–15% of lending to households. The much larger part was, of course, secured lending for housing. And it is fair to call it a boom. Secured household debt relative to annual household income was stable at around 70% for much of the 1990s, before rising rapidly to over 110% by 2007. The stock of household debt secured on housing went in real terms from around £ billion to £ billion. The main driver of course was the increase in house prices relative to earnings over the period – from about 2.5 times climbing to 5 times. Households have of course a house on their balance sheet – to set against the debt.

So between the mid-1990s and the financial crisis, the UK experienced a very powerful financial cycle – a long build-up of credit to the private sector followed by a sharp correction that has reversed some but not most of the preceding credit growth. There were of course other important elements such as lending overseas and between banks, and some would argue lending to governments. But I want today to focus on credit to the UK private sector, particularly household credit. I want to look at what lay behind the upswing of that cycle, the marked rise of credit to GDP since 1997. This is of more than academic interest. We are back to early 2000s levels of credit  1  See Schularick and Taylor (2012). BIS central bankers’ speeches  1  and debt in the economy. We are now emerging from the post crisis period of credit contraction; in the UK credit slowly began to grow again around 2012. It is now growing at almost the same rate as the economy. So now is a good time to ask: what lay behind the very rapid expansion of credit from the mid1990s to the crisis? Should we expect – or want – credit growth to return to its pre-crisis path, growing more than twice as fast as GDP? This is an important question for the Financial Policy Committee of the Bank of England as it assesses the risks to the stability of the UK financial system – where we are in the so-called “financial cycle”?