samchain/econo-pairs-v1 huggingface dataset:
The rapid development in the financial markets means moreover that the conditions for monetary policy are continually changing. It is therefore natural for the rules of action and strategies that govern monetary policy to be discussed and evaluated. I am going to begin by giving a short review of how the transmission mechanism is usually described and to discuss the changes that have taken place. Against this background, I will then briefly describe how the Riksbank conducts its monetary policy. What is the role of money? The quantity theory describes in a simple way how inflation is determined. In this theory, the price level is determined by the quantity of money in the economy. Production is determined over a somewhat longer period by access to labour and by the development of productivity; monetary policy does not affect production in the long term. It is intuitively easy to understand that at a given level of production the price level will increase if the quantity of money increases and vice versa if the quantity of money decreases. In an economy where only banknotes and coins serve as means of payment, the central bank can control inflation by determining the quantity of banknotes. This is conditional on the central bank knowing how much is required at a given price level in order for a particular quantity of goods to be produced and circulated - the speed or velocity of circulation must be known in order for a money quantity target to be used to control price movements.

Monetary policy must then be conducted in a flexible way based on the available information. This means, for instance that assessments of whether financial imbalances are being built up and the risks that are associated with this must be taken into consideration in some way when monetary policy decisions are made. And even if the possibility for an individual central bank to influence a strong international stock exchange increase through interest rate hikes is very limited, nothing will be improved by an excessively expansive monetary policy. The increase in share prices is moreover often followed up by a price increase in the real estate market and in contrast to the stock exchange, this is local and thereby to a greater extent dependent on the national interest rates. A more in-depth analysis of the quantity of money and expansion of credit can give leads as to what happened with household and corporate balance sheets and in the financial institutions, In certain periods, it can therefore be justified to give the analysis of lending and monetary policy increased weight. The complexity of the transmission mechanism combined with the necessity of clarity and openness sets considerable challenges for monetary policy decision-makers. It is important to avoid simplifying to such an extent, in the endeavour to create understanding of what one is doing, that one compromises one's freedom of action. BIS Review 40/2001  5
Lee Hsien Loong: Challenges in developing the Asian capital markets: the Singapore experience Address by Mr Lee Hsien Loong, Deputy Prime Minister of Singapore and Chairman of the Monetary Authority of Singapore, at the Euromoney Asia-Pacific Issuers & Investors Forum, Singapore, 19 March 2002. *  *  *  Introduction First, may I welcome all of you to the Euromoney Asia Pacific Issuers & Investors Forum, held for the first time here in Singapore. We are honoured to have here with us, a diverse and distinguished group of regional government officials, investors and issuers. Over the past few months, signs are emerging that the worst of the economic downturn may now be behind us. New orders, industrial output, consumer confidence and retail sales in the US have picked up. The swift policy response by the US Federal Reserve has helped restore liquidity and confidence to global financial markets, especially in the aftermath of Sept-11. Markets have also taken in stride the adjustment in the technology sector, the synchronized global slowdown, the Sept 11 terrorist attacks, Argentina, and Enron. In line with the recovery in the US economy and the global electronics industry, the Singapore economy too is expected to pick up this year, after the most severe recession in decades. Private sector economists are revising their growth forecasts for the year upwards. The government’s own forecast is currently for 1-3% growth, which is a fair assessment of the prospects.

It requires firms which are strong in technology and know-how, with systematic managements and meritocratic practices, firms which can hold their own against foreign competition, and with the potential to grow into significant industry players. Even then, such firms will complement, not replace, foreign investments by MNCs. Following this philosophy, Singapore’s economic policies will therefore remain externally oriented. We will continue to push for free trade, welcome investments, and integrate into the global economy, even as we promote entrepreneurship and seek to build Singapore firms into regional players. The pressures of globalisation can be uncomfortable, and the changes they force upon us can be painful. But globalisation has helped us to build a stronger, more resilient economy, one better prepared to hold our own against formidable competitors, and deliver a high and rising standard of living for our population. On capital account liberalisation, countries are now acutely aware that sound macroeconomic management is a key prerequisite, without which no regime of exchange controls can deliver stability. They also realise that they must sequence liberalization judiciously, and strengthen financial supervision and prudential safeguards as they liberalize. In the aftermath of the crisis, no Asian country imposed capital controls, apart from Malaysia. But several tightened safeguards to reduce the risks of destabilising capital flows, and to shield domestic foreign exchange and money markets from speculative pressures emanating from abroad. They improved monitoring, and discouraged trading in currencies that was not related to the real economy.
And more than forty countries have increased the coverage limits of their existing schemes, including in the UK, US and Germany. In a few countries, deposit insurance limits have temporarily been removed – for example, in Germany and Ireland. In many others, they have been removed implicitly. This, too, is a familiar pattern at crisis time. Laeven and Valencia find that coverage limits for deposit insurance schemes on average increase fourfold in relation to GDP after systemic crises. 10 As with liquidity insurance, there has been a secular expansion in the scope and scale of deposit insurance. Finally, explicit capital insurance of the banking system appears to have been a more recent phenomenon. In the US, the Reconstruction Finance Corporation was established in 1932 at the height of the Great Depression; it played a key role in recapitalising US banks through injections of preferred stock. More recently, recapitalisation of the banks has accompanied the banking crises in Scandinavia, Japan, Asia and Latin America. Historically, capital injections into the UK banking system have tended to be small and bespoke – for example, at the time of the secondary banking crisis in the 1970s and the small banks crisis in the early 1990s (Table 2). 11 In terms of scale, capital injections during this crisis knock these interventions into a cocked hat. Once again, the decimal place has changed place. This pattern is replicated in studies of recent systemic banking crises.

Bond prices are stretched as investors seem to have become less concerned about their safety. The picture in the UK bond market has an added nuance. Equity prices for UK-focussed companies have underperformed international equity markets as investors have factored in perceived lower, and downside risks to, future growth. 7  And yet, sterling corporate bond markets are stretched like other bond markets. 8  To get a better read on how stretched, we need to account for the lengthening over time in the average duration of sterling corporate bonds and the fall in the average credit rating (which other things equal should raise risk premia). When we do that, we see that the joint compensation investors are demanding for interest rate and credit risk is… …zero. There is an inconsistency. If investors are confident in risk-free rates remaining low because they see downside risks to the economy, it seems odd that that they should at the same time be demanding less, rather than more, compensation for credit risk. There’s more than a flavour of interest rate cake having and credit risk cake eating. The picture in parts of the UK commercial property market is similar. At the UK-wide level, commercial property prices rest on persistently low interest rates but at the same time, they’re factoring in typical rental growth prospects and degree of uncertainty around them. 7  UK government bond yields have also fallen relative to other sovereigns.
These efforts will all contribute to a more resilient system, one that is better able to withstand the effects of a major decline in asset prices or deterioration in credit. Are there other tools that policy makers and market participants could use to address this risk? Some policy makers have argued that public disclosure of information could help reduce the risk of future systemic financial crisis, by preventing the buildup of "excessive" leverage or concentrations of risk. The principal focus of attention, as in the immediate wake of the failure of Long Term Capital Management, has been on two quite different types of public disclosure. The first is information that would make it easier to evaluate the overall leverage or risk profile of major hedge funds and their counterparties, and thereby judge their vulnerability to a sharp movement in asset prices. The second is information about the actual positions of individual funds or institutions: information that would make it easier to identify concentrated exposures to specific risk factors, and thereby assess more accurately the potential impact of the failure of a major fund or institutions on the market as a whole. These pose very different challenges and offer different benefits. There are a number of crude measures of overall risk profile that, if disclosed to the market, would give counterparties information they do not now typically get about the risk of failure of the fund.

Thus, we see that the Libor cannot remain at 0.25% indefinitely. However, as our forecast also shows, it would not be advisable to increase the Libor now since the very weak inflation rates expected in 2010 (0.4%) and 2011 (0.3%) indicate that the deflation risk has not completely disappeared. We continue to use an inflation forecast to guide our decisions. In this way, we will ensure that the unconventional measures currently in force do not compromise medium and longterm price stability.
Rather, they served as a backstop to banks’ own risk assessments. Basel rules were there to support, not supplant, commercial risk decisions. During the 1990s, the bluntness of the risk judgements embodied in Basel I came increasingly to be questioned – and arbitraged. Basel I was perceived as lacking risk-sensitivity, at least by comparison with the new wave of credit and market risk models emerging at the time. Change came in 1996 with the Market Risk Amendment. 9 This  8  Basel Committee on Banking Supervision (1988). 9  Basel Committee on Banking Supervision (1996). 6  BIS central bankers’ speeches  introduced the concept of the regulatory trading book and, for the first time, allowed banks to use internal models to calculate regulatory capital against market risk. With hindsight, a regulatory rubicon had been crossed. This was not so much the use of risk models as the blurring of the distinction between commercial and regulatory risk judgements. The acceptance of banks’ own models meant the baton had been passed. The regulatory backstop had been lifted, replaced by a complex, commercial judgement. The Basel regime became, if not self-regulating, then self-calibrating. A revised Basel Accord, Basel II, was agreed in 2004. It followed closely in the footsteps of the trading book amendment. Internal risk models were allowed as a means of calibrating credit risk. Indeed, not so much permitted as actively encouraged, with internal models designed to deliver lower capital charges.

Of course, the costs of this regulatory edifice would be considered small if they delivered even modest improvements to regulators’ ability to avert future financial crises. The public policy question is – will they? In financial regulation, is more more or is more less? To begin to answer that, consider a set of empirical experiments on the performance of regulatory rules, simple and complex. (4)  Risk-weighting capital – simple or complex? The primary source of complexity in the Basel framework is granular, model-based risk-weighting. Heightened risk-sensitivity of the regulatory framework was intended to improve the detection of bank weakness. But if the financial environment is uncertain, complex risk-weighting may be sub-optimal. As when predicting Alpine avalanches or Wimbledon winners, simpler weighting measures may be more robust. This is a testable proposition. To do so, we take a sample of about 100 large, complex global banks, defined as those with total assets over $ billion at end-2006. 15 These large banks are likely to hold a diverse array of assets and to use complex, internal models to calibrate regulatory capital against these assets. So at least in principle, risks to these banks should be better captured by granular, risk-sensitive capital measures. Von Neumann-Morgenstern principles, with probabilistic-weighting, ought to apply. Consider the relative performance of two measures of capital in predicting bank failure during the course of the crisis: the Basel Tier 1 regulatory capital ratios with assets risk-weighted and simple leverage ratios with assets equally-weighted – a 1/N rule.
The excessive budget deficit procedure was initiated against Germany and France which exceeded the maximum budget deficit allowed according to the Growth and Stability Pact, 3% of the GDP - and the number of such member states will probably grow. At the same time, the situation initiated a discussion regarding sufficient flexibility of the Growth and Stability Pact, first and foremost in the context of a weaker economic situation. •  Estonia's budgetary policy is and has been strict and balance-oriented. This gives us a competitive advantage over others and does not place us in an inferior position, contrary to what has been erroneously claimed. The current debt burden of the Estonian government sector is about 5% of the GDP (the lowest in the EU accession countries); the budget deficit of the government sector rose above the maximum level allowed under the Maastricht criteria only in 1999. 6  BIS Review 26/2004  •  While assessing the relevance of the budgetary balance requirement from the viewpoint of Estonia's future competitive ability, one certainly has to bear in mind that merely meeting the budget criterion might not be a sufficient success guarantee. In the conditions of the common monetary policy, the budgetary policy will become the principal economic policy tool through which the government can independently influence economic development (e.g. stimulate its economy in the period of slow growth).

I would like to stress that being among the first is not an aim in itself but arises from the acknowledgement that Estonian economic fundamentals have stood firm and that our economy will be ready for joining the mechanism in a few years. •  Joining the Economic and Monetary Union is a crucial step for the Estonian economy, which will secure the sustainability of a favourable investment climate and strengthen the prerequisites for a continued long-term and balanced economic growth;  •  The estimates by foreign investors and rating agencies on the reliability of Estonian economy have already taken into account the imminent membership of the EMU, which is evidenced by the interest margins and credit ratings that are already on the levels comparable to the old member states;  •  A prerequisite for sustaining the outstanding reliability achieved to date is as fast as possible changeover to the euro, i.e. becoming a full member of the Economic and Monetary Union. An important argument in favour of a comparatively swift changeover to the euro is Estonia’s current economic situation. What are the grounds for such a claim? In order to evaluate the broader economic impact of joining the euro system and choose the right accession moment, the UK has adopted five 'euro tests'. These are the following: 1. Have the economic structures and cycles of the accession country and the euro zone converged sufficiently for a successful application of the common monetary policy? 2.
Only by applying the same definitions worldwide, can the soundness of individual banks be compared internationally. It avoids the possibility of financial institutions engaging in arbitrage through the establishment of complex cross-border legal structures. These international decisions are also far-reaching in their importance because they predetermine the options and limitations faced by national regulators. However, implementation at national level is ultimately decisive. In particular, it is the deciding factor as far as financial institutions in any one country are concerned. In this respect, an international minimum standard cannot suffice when it comes to addressing specific national problems. For instance, at the moment, the Basel III package does not address the issue of systemically important banks, which fundamentally concerns Switzerland. Because of this concern, proposals that go beyond Basel III were presented in the report of the committee of experts. Central banks as the lender of last resort for markets? I will now move on to another point, which is directly related to the topic of this conference – liquidity. Since markets are constantly undergoing dynamic processes of adjustment, it is clear that another crisis can never be completely ruled out. Complete security is impossible. 8  The introduction of a leverage ratio is also planned within the Basel III framework. BIS Review 146/2010  5  Consequently, at times, the markets will be unable to provide sufficient liquidity in an efficient manner. In such cases it is essential that central banks are able to step into the breach temporarily as lender of last resort.

-  The cyclical component pertains to the way we can combine agility and  predictability in a very uncertain environment. We should be careful not to return to secrecy, or to unnecessarily add to financial and economic volatility. Otherwise, as research at the Banque de France shows, economic agents may begin to question our ability and commitment to fulfil our objectives, which could translate into dis-anchored long-term inflation expectationsiv. I suggest in my recent Jackson Hole speech some principles for this “new predictability”v. Not having a forward guidance does not mean, cannot mean, not having a narrative and a monetary strategy. -  The structural component is that our communication must not only resist  the risk of “political dominance” or “market dominance” that would run counter to our independence, but two additional risks that appear more specific to the current period. The first risk is the dictatorship of short-termism, imposed on us by the recent series of crises. Of course, we have to deal with them, but we must not become a prisoner of emergencies. We must continue to focus on the longer-term, in keeping with our role of advanced sentinels: central banks rely on their close monitoring of all financial and economic indicators, and also on their anticipation of how they may evolve in the future. The second risk is that of corporatist fragmentation. It is the other disease of the century. Of course, we are not responsible for it, and we are not corporatists.
That actual interest rate developments will deviate somewhat from the Bank's forecast will probably be the rule rather than the exception. In Monetary Policy Report 2/07, it was pointed out that high capacity utilisation and higher cost inflation may on the one hand lead to higher-than-projected inflation. Sustained high productivity growth, a more pronounced shift towards imports from low-cost countries and a stronger krone exchange rate may on the other hand result in lower-than-expected inflation. When Norges Bank’s Executive Board decided on 26 September to raise its key policy rate by 0.25 percentage points to 5.0 per cent, it was stated in the press release that growth in the economy has been stronger than expected, cost inflation is on the rise and that there are prospects of a further pick-up in price inflation. It was also pointed out that financial markets have been turbulent since the beginning of August, the global economic outlook is uncertain and the krone is strong. The Executive Board therefore considered the alternative of leaving the key policy rate unchanged at this meeting. In addition, it was stated that if the turmoil in financial markets persists and the krone remains strong, and this has considerable consequences for the outlook for inflation, output and employment, Norges Bank’s key policy rate may be raised to a lesser extent than envisaged in Monetary Policy Report 2/07. Thank you for your attention.

In the second quarter, sickness absence stood at 6.5 per cent of contractual person-days, although there are substantial occupational and geographical variations. In Rogaland, sickness absence is 1.4 percentage points lower than the national average. If sickness absence in the rest of the country falls as low as in Rogaland, nearly 30 000 additional person-years would be available for productive activity. Reduced sickness absence and reduced outflows into social security schemes – particularly among young people – would result in substantial economic gains. Economic developments The Norwegian economy is in a period of strong expansion after a marked upturn since summer 2003. The upturn followed a period of slow growth since 1998 and a mild slowdown in 2002 and into 2003. Growth in the mainland economy has been high since then, and higher than expected. When the key policy rate was reduced in 2003, demand and output picked up quickly. The upturn was supported by strong productivity growth, reflected in exports, petroleum investment and, after a period, public demand. So far in the cyclical upturn, the mainland economy has grown by an average of just over 4 per cent annually. The upturn is now in a mature phase. Even though output increased rapidly, it took a long time for employment to edge up. The increase in employment was for a long period slower than in the upturns in the 1980s and 1990s. Employment only began to pick up towards the end of 2005, and has since risen sharply.