samchain/econo-pairs-v1 huggingface dataset:
5  Source: St.meld. 39 (1993-94). 6  Source: For Sweden: Jennergren and Näslund (1998). For Norway: Norges Bank, Moen (2003). 7  See Hoggarth, Reis and Saporta (2002). 8  Peek and Rosengren (2000) look at the loan supply shock facing U.S. firms borrowing from Japanese banks during the banking crisis in Japan. They identify a substantial impact on U.S. real estate activity from this supply shock. 9  See Ongena, Smith and Michalsen (2003) and Vale (2002). 4  BIS Review 58/2003  good advice, but there is a delicate balance between restoring private ownership quickly and trying to recover as much as possible of the government’s fiscal costs. The Norwegian banking crisis was handled swiftly and transparently and at relatively low cost to the taxpayers. Furthermore, the banks that came out of the crisis had trimmed their operating costs and established much better systems to evaluate credit risks. In one respect, we were rather lucky compared to others. The crisis built up gradually, so there was time to assess the situation and strengthen the defences of the financial system before the crisis became systemic. The banks’ equity capital provided the first line of defence and the banks’ collective guarantee funds the second when bank losses started to soar. The third line of defence - the Government Bank Insurance Fund - was only established when it was evident that the first and second lines of defence did not hold, but it was nevertheless established in time.

By and large most scholars seem to agree that the resolution of the crisis in Norway was fairly successful. But even if it was, right there and then, there is no guarantee that the same recipe will be successful in future or in other countries. In recognition of this and to avoid moral hazard, the law establishing the Government Bank Insurance Fund has now been repealed and the Fund has ceased its operations. Even if government capital injections in the large problem banks were the right resolution method in the early 1990s, it is far from evident that such a rescue operation would be the right method should a large bank fail in the future. However, I think it is possible to identify some principles that should be adhered to in order to increase the chances of success. The focus must be on saving the financial system, not the individual bank. With regard to the way failed banks are handled, the division of responsibilities between various parts of government must be clear, as it was ten years ago. As then, owners should be the first in line to shoulder losses. Similarly, the board and top management responsible for the failure of a bank should not be allowed to continue. Hopefully we have all, bankers and authorities alike, learnt from the crisis. At the central bank, we have strengthened our surveillance of the soundness of our financial system (macro-prudential supervision).
Uncertainty surrounding resource utilisation also makes it difficult to assess whether or not monetary policy is well-balanced. My own assessment is that resource utilisation was more or less as high before the crisis as during the previous boom in 2000 and that the GDP gap was thus in the range of + 2 per cent in 2007. Here, I assume that the GDP gap based on HP trends provides a reliable measure of the GDP gap for 2000 and that other series, for example the RU indicator, indicate that the level of resource utilisation was approximately the same in 2007 as in 2000. I also assess that potential GDP decreased by approximately 4 per cent in conjunction with the crisis. This is slightly above the OECD’s calculations, but the OECD has only calculated the effect of certain identified changes within the framework of a production function. It has not considered other possible effects of the crisis on potential GDP, such as, for example, an abnormally high level of capital consumption. Swedish experiences of previous deep recessions and international experiences of financial crises both indicate that the effects can be greater. The difference from the GDP forecasts we made before and after the fall of GDP in 2009, as well as estimates of the manufacturing sector’s potential production also indicate an effect of approximately 4 per cent.

There is no simple link between one measure of resource utilisation and one measure of inflation. Resource utilisation can instead be measured in several ways, each of which has its strengths and weaknesses. Inflation can also be measured in a number of ways and we regularly utilise a large number of measures  13  For a more detailed discussion see Adolfson, M. and Söderström, U. (2003) “How is the economy affected by the inflation target?” Sveriges Riksbank Economic Review 1/2003. 14  The HICP is the EU-harmonised consumer price index and largely corresponds to the CPIF, but is not affected by weighting changes at the end of each year. BIS Review 130/2010  7  of underlying inflation. In this multi-faceted world, we make the best assessments we can of the direction of monetary policy. At the latest monetary policy meeting on 1 September, we decided to raise the repo rate by 0.25 percentage points to 0.75 per cent, and our assessment was that the repo rate will gradually be increased to more normal levels as resource utilisation increases. The repo rate will nevertheless be abnormally low for some time to come in order to support the recovery in the economy. I supported the forecast for the repo rate made in the latest Monetary Policy Update – a forecast that I believe is well in line with the picture of a stable economic upturn in Sweden. (Figure 14. Repo rate).
Malaysia also has in place the financial infrastructure and facilitative rules that contribute towards efficient price discovery and shorter time to market, thus providing an efficient platform for sukuk issuance and trading activities. The established legal, regulatory and Shariah framework in the Islamic financial infrastructure in Malaysia is reinforced by the supporting financial infrastructure, including the settlement and bond information system. To facilitate an efficient sukuk issuance process in Malaysia, an MIFC One-stop centre is being established as a single contact point for efficient delivery process to facilitate the issuance of sukuk. To further facilitate this process, there is no restriction on the ability to use international rating services, on the ability to hedge positions and on the ability to swap issuance proceeds into foreign currency. As part of our ongoing efforts to position Malaysia as an attractive gateway for the issuance of sukuk, a number of legal and regulatory requirements are further customised to reduce the cost of sukuk issuance. Profits and dividends received by non-resident investors from holding of ringgit and non-ringgit Islamic instruments issued in Malaysia are exempted from withholding tax. Special Purpose Vehicles (SPV) for Islamic financing purposes via the Islamic capital market are not subject to the administrative procedures under the Income Tax Act 1967. In addition, companies that establish these SPVs are given a tax deduction on the issuance cost of the Islamic securities incurred by the SPV. The issuance cost for all Islamic securities approved by the Securities Commission are also eligible for tax deduction.

As past experience shows, it is difficult to push inflation back up to the central bank’s objective if inflation expectations fall meaningfully below that objective. Japan’s experience is cautionary in this regard. Recent evidence on inflation expectations suggests some firming, but there is still cause for concern. Although both measures of longer-term inflation compensation based on nominal and inflation-indexed Treasury securities as well as some survey measures of inflation expectations have risen modestly since mid-February, the levels of many of these measures remain quite low. 2  BIS central bankers’ speeches  Now, as I have noted, the low level of market-based inflation compensation probably reflects factors besides inflation expectations, in particular lower term premiums. Still, it would be prudent to consider the possibility that longer-term inflation expectations of market participants may have declined somewhat. Even after a rise in its most recent reading, the median of the three-year inflation expectations from the New York Fed’s Survey of Consumer Expectations remains near its lowest reading over its short history. Renewed declines in survey measures would be worrisome. However, at this point, my conclusion is that inflation expectations have not become unanchored. In sum, I anticipate that the combination of decreasing resource slack and anchored longerterm inflation expectations will help push inflation up to our 2 percent objective over the medium term.
The Imperative of Resilience After studying this event and others, the IAW G has proposed a number of principles to guide public policy for Treasury market reform.3 It has also established several workstreams to study aspects of the Treasury market and help us achieve our collective objectives of financing the government efficiently, supporting the broader financial system, and implementing monetary policy. The IAW G’s No. 1 principle and No. 1 workstream center around improving market resilience. I think it’s safe to say that strengthening resilience is at the top of everyone’s Treasury reform list. Resilience is the imperative of all markets—and that is especially true in the Treasury market because of its central role in the financial system. The adage of the financial markets is that Treasuries are safe havens, even in the most turbulent times. The Treasury market has been able to absorb many shocks through the years. But as the world changes, the market, too, evolves. The growth of electronic trading has transformed the mix of 2/4  BIS central bankers' speeches  intermediaries and trading practices. Firms now increasingly have access to multiple financial markets, and markets are increasingly interconnected. When the Treasury market breaks down, when trading is disrupted, or when interest rates move in ways that are not based on fundamentals, the ripple effects can be swift—and devastating to the flow of credit to businesses and households. What we’ve learned during crises is that when the flow of credit to the economy is at stake, we must act quickly and decisively.

Today I intend to give my views on these issues. I shall concentrate on the role played by elevated asset prices and indebtedness with regard to developments in demand and thereby price stability. Let me begin with a brief summary of my speech: •  Many central banks are worried by rapidly growing house prices and lending over long periods of time. The historically very low interest rate levels could create unrealistically low expectations of interest rates in the future. However, it is difficult to determine whether this development actually increases the risks to demand and inflation and whether – and how – monetary policy can in this case take these factors into account. •  These risks cannot be captured by the traditional models and forecasting methods normally used by central banks, which means that opinions differ as to how the central banks should act. Should we react in advance to subdue possible negative effects, or should we wait until a possible correction takes place? •  My opinion is that we must make the best possible assessments and act in advance to try to prevent the risk of large corrections leading to significant falls in demand and to lower inflation further ahead. •  There are both cyclical and structural factors which could motivate high growth figures for loans and house prices in Sweden over a period of time.
Although the short-term interbank interest rates have come down to low levels very quickly, the interest rates for the 1-month maturity and beyond had stayed above 10% for a longer while. However, since mid-November the term interest rates have also eased steadily, with one month rate falling to 7.5% early this week. While some may regard the present levels of interest rates as too high and the correction in the stock market and property market too painful, they have missed a vital point when they put all the blame on the linked exchange rate system. This is because they have assumed, quite wrongly, that under a floating rate system, Hong Kong interest rates can stay constant or low compared with what they are under the linked exchange rate system. Moreover, they assume that the asset markets would have avoided the kind of sharp falls that we have experienced. This is an unrealistic assumption because the financial turmoil in our neighboring economies is a regional or even global problem from which Hong Kong cannot be immune. 4. It may be easier to explain my point by comparing Hong Kong with our neighboring economies. You are of course aware that the regional stock markets, including Hong Kong, have seen major corrections recently.

Again I quote these figures to illustrate the point that even under a floating rate regime, as in the case of Singapore, domestic interest rates can still go up sharply in the event of external shocks. It will be wrong to assume that interest rates will remain stable if Hong Kong were under a floating rate regime when external shocks occur. 5. While a floating rate regime will not insulate Hong Kong from possible interest rate hikes and asset market corrections when external shocks occur, to abandon the link now will have even more devastating results. According to the analysis conducted by one of the major banks in Hong Kong, a switch to a floating rate regime would lead to a sharp rise in inflation, to a double digit figure, and a sharp fall in GDP growth for 1998. Moreover, the uncertainty and disturbance caused by the change will undermine public confidence in Hong Kong’s monetary system, which may bring irreparable damage to Hong Kong’s position as the leading international financial centre in the region. In short, the price and pain for switching to a floating rate regime will be even higher. 6. Clearly I appreciate that Hong Kong’s manufacturers will be facing strong competition from our neighboring economies whose currencies have depreciated sharply in recent months. However, competitive devaluation is not and cannot be our answer to the problem. While attractive superficially, competitive devaluation is a risky and counterproductive approach.
In particular, additional costs required by banks to anchor the new credit remain tight, in response to the perceived uncertainty and their reacting mechanism for credit risk reduction. Against the backdrop of slow current and expected economic developments, aggregate demand and inflation, the monetary policy deepened its stimulating nature in the third quarter. As at end-July, the key rate was lowered by 0.25 percentage points, down to its historical minimum of 4.0%. This was the fifth key rate lowering since September 2011. Parallel to that, the Bank of Albania continued to supply the banking system with the required liquidity through its variable liquidity-providing operations. *** Future outlook suggests that inflationary pressures remain low. Our analyses and projections conclude that the economic activity will remain below potential, exerting pressures on the downside inflation. At the same time, the supply generated pressures appear contained. Based on current performance of inflation-determining factors and their future outlook, after 12 months inflation is expected to fluctuate around 1.2% – 3.4%, with a probability of 90%. The expected inflation and economic outlook imply the maintaining of a stimulating monetary policy for the period ahead. The Bank of Albania remains heedful to future developments and new information, and stands ready to intervene timely and duly to meet its legal mission. BIS central bankers’ speeches  3

A key area for cooperation that is being advanced relates to the provision of a robust liquidity management infrastructure for Islamic finance. This is an important imperative to ensure the resilience and stability of the Islamic financial system, as well as to reduce the cost of intermediation. A significant regulatory challenge remains in terms of having efficient crossborder liquidity risk management in the Islamic financial system, due to the lack of short-term Shariah compliant instruments in international currencies. A chapter in the book describes the regulatory response to the issue of liquidity risk facing Islamic financial institutions, including the important role of the International Islamic Liquidity Management Corporation (IILM) in facilitating cross-border liquidity management. BIS central bankers’ speeches  1  With these changes set to re-define the financial landscape going forward with far reaching implications, the publication of this book is both timely and relevant. Six years from its first edition in 2007 which made an important contribution to the literature on the regulation of Islamic finance, this second edition captures the diverse range of current information and updates arising from the regulatory issues in a post-crisis global economy. Reviews on the various characteristics of risks faced by Islamic financial institutions will improve the understanding and examination of the implications of current and new reform initiatives for the regulation and supervision of Islamic finance.
BIS Review 60/2010  9  possible asset price bubbles, such as the unsustainable development of housing prices: 9 “First, policymakers must be able to identify bubbles in a timely fashion with reasonable confidence. Second, there must be a high probability that a somewhat tighter monetary policy will help to check at least some of the speculative activity. And third, the expected improvement in future economic performance that would result from the curtailment of the bubble must be sufficiently great.” It is obvious that these conditions do not prevail at present. 10 The division of the Swedish economy The crisis has led to a division of the Swedish economy in which the export industry is struggling while the service sector is doing well. It is, however, beyond the power of monetary policy to influence development in an individual sector. Monetary policy can only focus on stabilising average resource utilisation and average inflation. This division is therefore not itself normally an argument for either a more expansionary or a more contractionary monetary policy. However, in the current situation, with a very low level of resource utilisation and a very weak export industry, one can claim that irrespective of how sensitive to interest rates the export industry is it should benefit from a weak krona and suffer from a strong krona. As a more expansionary monetary policy would entail a weaker krona one can claim that the division is in this situation an argument for pursuing a more expansionary monetary policy.

Credit volumes, house prices and the level of economic activity should only affect monetary policy to the extent that they affect the forecasts for inflation and resource utilisation. Credit volumes and house prices are not targets for monetary policy. One can claim, however, that the repo-rate path chosen should not threaten financial stability. This may mean that one avoids repo-rate paths with very high repo rates in a situation in which financial stability is fragile and there is a lack of instruments to deal with this. It is also possible that in certain situations this can justify the avoidance of very low repo rates. But, as long as financial stability is not threatened I see no reason to rule out any reporate path at a monetary policy decision. The extended repo-rate path has the same effects as the lower repo-rate path This leads me to the latest monetary policy decision. One of the reasons why different people may prefer different repo-rate paths is of course that they have different views about underlying – of monetary policy independent – economic developments in Sweden and abroad. One may for example have different views about international growth, wage bargaining outcomes and productivity growth. Here I would like to make it clear that I share the view of underlying economic developments in Sweden and abroad presented in the latest Monetary Policy Update.
This raises the question, however, whether it is necessary for central banks to carry out all the activities that they perform. As I mentioned earlier, I believe that central banks should assess the scope of their operations on a regular basis. By focusing on core activities at Sveriges Riksbank, it has been possible to cut the number of employees from about 850 in 1995 to around 450 today. In addition, one could go on to compare the costs of certain activities. We per-form benchmarking in several areas, and I know that this is something that other central banks have been doing as well. One should also compare the costs of in-house operations with those of outsourcing. Such comparisons have led us to outsource some activities, such as cleaning services and our staff restaurant. One potential problem when comparing activities separately is that it presupposes that objectives are not interrelated, and that there are no joint costs associ-ated with the different activities. Recently, questions regarding the connection between price stability and financial stability have attracted increasing attention and have given rise to a debate on whether there may be situations where the two goals conflict with each other. In normal circumstances, however, we do not perceive any conflict among our objectives. When measuring costs, it is important not to count the costs of the central bank only, but also of other parties that are important to performance.

As a result, we need to work hard with these issues and invite external evaluation. Cost-consciousness is especially important in cases where a central bank determines its own budget, as hard-won legitimacy can be quickly lost. At Sveriges Riksbank, we will be continuing our search for efficiency gains, and we will so do whether or not we join the Eurosystem. To this end, we need new influences and new ideas, which I hope to get over the coming two days. Once again, I would like to extend you all a very warm welcome to Sveriges Riksbank and this workshop. BIS Review 24/2003  5