samchain/econo-pairs-v1 huggingface dataset:
However, on each occasion there are also factors that dominate over the common pattern, for instance the current mortgage crisis in the United States and the ensuing contagion effects on the financial markets as a whole. It is partly because of this that the forecasts become uncertain. In addition, it is particularly difficult to predict the turning points in the cycle. As monetary policy acts with a time lag, it must nevertheless be based on forecasts of how we believe that growth and inflation will develop. As time passes, new information is received which may cause us to reconsider our earlier analyses. This means that the forecasts we make regarding, for instance, the repo rate are not promises, but a forecast that is just as uncertain as the other parts of the forecast. I shall try to put some perspective onto the current situation by first going over what we know about Swedish cyclical patterns and then discussing the prominent features of this particular recession. Do we know what governs economic cycles? At the beginning of the 20th century economic cycles were regarded as natural and unavoidable, often in the light of the variations in agricultural production. Then came Keynes in the 1930s with his classical analysis 2 where fluctuations in economic activity were regarded as a result of fluctuations in demand. According to Keynesianism, recessions should be combated by an active policy.

However, this type of forecast has a relatively good accuracy in the short term (up to one year ahead). 6 The forecast produced by the now-casting is then entered into the large DSGE model and forms a basis for the model’s longer-term forecasts. The international forecast for all quarters is then also made outside of Ramses and entered as input into the model. As all models are simplifications of reality, however, the final analysis must always contain elements of assessment that correct the results from the model. In addition, some markets, for instance, the financial markets, are not entirely reflected in these models. 7 The latter play an important role in the current stage, which is affected substantially by the financial turbulence. General equilibrium models are an important analysis tool as they provide a consistent picture of the economy. They can therefore also be used for policy analysis and to analyse alternative scenarios. 4  F. E. Kydland and E. C. Prescott “Time to build and aggregate fluctuations”, Econometrica 50, 1982, 13451370. 5  O. J. Blanchard, “The state of macro”, NBER working paper series, August 2008. 6  See M. K. Andersson and M. Löf. Sveriges Riksbank Economic Review 2007:1. 7  C. E. Tovar. “DSGE models and central banks”. BIS Working Papers No 258. 2008. 2  BIS Review 121/2008  Some facts about economic cycles According to economic theory, fluctuations in growth thus arise as a result of various external shocks affecting the economy.
But the continued relative decline of manufacturing – and indeed the strength of sterling – over the past decade or so reflects, not the stance of monetary policy, but the remarkable wind of change that has blown across the world economy with the advent of China, India and much of the former Soviet Union into the world trading system. To their great credit, business people and politicians have not resisted changes to the structure of the British economy, unlike many of their counterparts abroad. As a result, total output and employment here have grown rapidly, and our living standards are higher than could have been sustained with policies aimed to defend the old industrial structure. Those changes, however, have led to the closure of many manufacturing companies. There are over a million fewer people employed in manufacturing now than a decade ago, and 200,000 fewer in the West Midlands. It is just over a hundred years since car production started at Longbridge, just over thirty years since it was nationalised, and no vehicle has been built there for over a year. But there are also many success stories. Since I became Governor, I have made regular monthly visits to the regions and countries of the United Kingdom, and visited around one hundred companies, large and small, new and old.

Mexico’s transformation from a nation racked by repeated financial crises to one enjoying healthy economic growth, low inflation, and remarkable financial stability owes in no small part to tireless efforts of Dr Carstens and his colleagues in central bank and Mexican government. 7. I have had the privilege of interacting with Agustin at many international meetings over the last two years, at the BIS, IMF, FSB, and others. When Agustin speaks, people listen. His interventions at meetings are always insightful – balanced, thoughtful, and reasonable. He is an articulate spokesperson for the challenges and concerns of emerging market economies. And occasionally a well-meaning and constructive critic of policies in the advanced economies. And Agustin does all this with an abundance of grace, courtesy, and respect for everyone around him – a gentleman even by the high standards of central bankers. 8. Ladies and gentlemen, please join me in warmly welcoming Dr Agustin Carstens. BIS central bankers’ speeches  1
Fritz Zurbrügg: A new premise for Swiss National Bank monetary policy? Speech by Mr Fritz Zurbrügg, Member of the Governing Board of the Swiss National Bank, at the KOF Forecast Conference, Zurich, 1 October 2015. *  *  *  Ladies and Gentlemen I would like to thank you for your invitation to the KOF Forecast Conference. Economic forecasts play an important role in investment and consumer decisions. They are also a central parameter in the economic decision-making process of public institutions. At the same time, we know that economic forecasts are associated with considerable uncertainty. Even comprehensive models only represent a very simplified presentation of a complex reality. Assumptions based on the forecasts can quickly be overtaken by events. In this regard, 2015 is a very special year for the forecasting institutions in Switzerland. The decision by the Swiss National Bank (SNB) of 15 January to discontinue the minimum exchange rate of CHF 1.20 to the euro and to lower the interest rate on sight deposit accounts at the SNB to –0.75% rendered important assumptions of the existing forecast obsolete. After the decision, the Swiss franc appreciated sharply. At the same time, interest rates in the money and capital markets continued to fall and are now predominantly in negative territory. Some market analysts have asked themselves whether this situation has brought about a fundamental change of premise or creates an entirely new set of parameters for the Swiss economy and the SNB’s monetary policy.

The favourable position of our economy by international standards shows that a strong currency can have a positive overall impact in the long term. Companies are under constant pressure to cut costs and innovate and this strengthens the economy’s adaptability, flexibility and productivity. Quality improvements and specialisation ensure that foreign customers have few comparable alternatives to many Swiss export products. Companies therefore have a certain pricing power. At the same time, the strong Swiss franc helps to further integrate the Swiss economy into the global value chain. Here, too, the negative impact for Swiss suppliers contrasts with positive long-term effects. A SECO study shows that greater integration in the global value chain – thanks to the associated natural hedging – helps to alleviate the negative  BIS central bankers’ speeches  1  effect of an appreciation on profit margins.1 Many companies are therefore able to absorb the effects not only by adopting internal cost-cutting measures, but also via lower import prices. Overall, then, we may assert that specialising in high-quality products and services which exhibit high value added and cannot be easily substituted, on the one hand, and natural hedging on the other hand, make the Swiss economy more resilient to appreciation shocks. My comments so far may appear overly positive. This is why it is important to me to make three reservations. First, using the trade-weighted real exchange rate, chart 1 shows that the Swiss economy has already had to live with exchange rate fluctuations in the past.
4  See Kenneth Rogoff, Aasim M. Husain, Ashoka Mody, Robin Brooks and Nienke Oomes (2003): “Evolution and Performance of Exchange Rate Regimes”, IMF Working Paper 03/243; Eduardo Levy-Yeyati and Frederico Sturzenegger (2003): “To Float or to Fix: Evidence of the Impact of Exchange Rate Regimes on Growth”, American Economic Review, September 2003, pp. 1173-1193; Jeannine Bailliu, Robert Lafrance and Jean-Francois Perrault (2003): “Does Exchange Rate Policy Matter for Growth?”, International Finance 6:3, 2003, pp. 381-414. BIS Review 25/2004  5  In 2003, wage growth was considerably lower than in the previous five years. This provided a sounder basis for substantial reductions in Norwegian interest rates, resulting in a narrowing of the interest rate differential between Norway and other countries. The reduction has contributed to a weakening of the krone since December 2002. Thus, the real exchange rate has also weakened and business sector competitiveness has improved. However, the business sector is still feeling the effects of the loss in competitiveness that resulted from high wage increases. The internationally exposed sector has been scaled back. Those companies that are still operating may be in a better position to bear the high wage level. Nevertheless, costs may hamper activity and employment growth. For a long time, a stable exchange rate and the level of cost inflation among our trading partners provided an anchor for wage determination in Norway.

The mandates of central banks are changing, as they are strengthening their macro-prudential powers and embracing more explicitly the objective of financial stability. Some major central banks have for the first time assumed the direct supervision of credit institutions. Thus, this period of changes is going to be a landmark in the history of central banking. The current overhaul of banking regulations globally is also fundamental by nature. The scale of reforms in the regulatory framework for the banking industry, after the collapse of Lehman Brothers and the outbreak of the euro area sovereign debt crisis, could be compared only with the major reforms undertaken in the aftermath of the Great Depression in the 1930s. The sheer magnitude of this changeover, however, does not guarantee the elimination, once and for all, of the regulatory gaps and loopholes for the risk taking activities of banks. Moreover, while the wide-ranging changes in banking regulation certainly improve banks’ capital, liquidity, operations and governance, they are sometimes feared to have a discouraging effect on banks’ lending and other services in the public interest. What caused the recent wave of banking reforms, what issues regulators still need to consider, and how are banks expected to respond on a global or national level?
Another relevant issue beyond the economic conjuncture is the need for the economy to recover the buffers that allowed macroeconomic policy to operate countercyclically. Chile's macroeconomic policy framework proved especially effective in the current cycle. One example of this is that monetary policy was able to accommodate a significant rise in inflation caused by a depreciation of the currency, by favoring a reduction in interest rates. This, because it was evaluated that the effect of the cyclical weakness of the economy on inflation would weigh more than the effects of the exchange rate increase. In the past, a similar situation would have been solved with a rate hike that would have had negative effects on activity. This has been made possible by our economic policy framework that was built based on a low level of public indebtedness, a high degree of capitalization of financial institutions, the financial solvency of companies and households, the credibility of fiscal and monetary policy, and an adequate level of international reserves. However, the slow growth of the economy over the past several years has partly used up these buffers. The level of public indebtedness has increased, banks have reduced their capital gaps and household debt has grown, while employment, having moved to more self-employed occupations, has less room to sustain itself without an increase in mean productivity (figure 11).

Add to this the persistence of the expansionary impulse from monetary policy, as can be seen by simple observation of the interest rates of consumer, commercial or mortgage loans, which are all at or very near their all-time lows. Moreover, different qualitative measures produced by the Bank, such as the Banking Credit Survey or the Business Perceptions Report, coincide in their favorable evaluation of the cost of credit, considering its low interest rate. Another way to measure the expansionary nature of monetary policy is to review how far or near the MPR is from its estimated neutral level, which we place between 4% and 4.5%. Therefore, a 2.5% MPR is clearly expansionary and, in our baseline scenario, we assume that we will come near the neutral level only by 2020. Furthermore, beyond the comparison with market rates or their neutral levels, Chile's monetary policy rate is among the lowest when compared to its Latin American peers or with other commodity-exporting countries with a similar macroeconomic framework (figure 3). The better prospects for 2018 growth also rely on the recovery of non-mining investment, including construction and other works, whose decline seems to be ending after one and a half years, which combines with a moderate growth in consumption (figure 4). All this is backed by improved consumer and business confidence indicators, which becomes all the more evident when referring to expectations about the future. These factors are not necessarily independent of each other, so it is difficult to quantify the importance of each one precisely.
Such initiatives are laid down for industry players to capitalise on, to achieve sustainable success and to unleash their potential gains both locally and abroad. In light of this, allow me to share my thoughts on some key focus areas and developments which embed our aspirations on the future direction of the takaful industry. Against a backdrop of growing opportunities and challenges as the business environment becomes more intensified and challenging, capacity and capability building measures for industry players to compete effectively and efficiently will continue to be pursued. These complement our efforts to further strengthen the institutional infrastructure of our takaful industry by increasing the diversity and strength of players in the Islamic financial system. The emergence of AIA AFG Takaful Bhd. in the Islamic financial landscape is therefore timely to further inject the competitive element that would propel the growth of the takaful industry. This is particularly so, as part of Malaysia’s recent liberalisation measures aim to develop a resilient, diversified and efficient financial sector with financial institutions that are in greater state of readiness to compete in a more liberalised and challenging environment. The granting of four new family takaful licenses by Bank Negara in 2009 is also complementary of Bank Negara’s initiatives of promoting the establishment of a core of robust industry players that could heighten competition and spur innovation in the takaful industry.

So, imagine trying to explain, and obtain support for, the following proposal: “to dampen interest rate volatility and lessen the interest rate pain by redefining the monetary base to include debt paper discountable at the HKMA through overnight repurchase agreements and fully backed by foreign reserves without departing from the monetary rule of currency board arrangements which requires the monetary base to change only with a corresponding change in foreign reserves”. This really is a mouthful. And to some, I must have been speaking Greek. But I can assure you that the wording of the proposal is precise and technically 100 per cent correct. In fact, this was exactly what we did when we introduced the seven technical measures in early September to strengthen our monetary system. And the proposal has worked well so far. But had the proposal been presented in those terms, I think even the most learned academics would have taken some time to figure out what we were up to. 10. The likely result is that nobody would be willing to comment on the proposal for fear of exposing ignorance on the subject. This might be considered a good result, in terms of ourselves being able to achieve what in our professional opinion should be done. And if the community has faith in the HKMA, confident that we know what we are doing, we may even get public support. But it is also a risky result. First of all, we can of course be wrong.
It is crucial to take immediate measures to tackle the inflation that we see on the horizon. This is the Central Bank’s mandatory role and the Bank is determined to perform it. The more that other economic agents contribute towards containing expansionary trends, namely the central government, local government and credit institutions, the easier it will be to ensure long-term stability. The successful economic policies of past years must not be swept aside in favour of short-term solutions that would ultimately only backfire. BIS Review 22/2005  5

However, pre-existing sources of risk and vulnerability remain and some have grown: •  The recent market jitters have confirmed concerns regarding previously identified risks and vulnerabilities and have revealed the relevance of some new risk exposures;  •  Vulnerabilities could be quickly unearthed if market liquidity were to abruptly and sharply decline, possibly triggered by a wane in risk appetite caused by a change in risk perceptions;  •  Re-leveraging in the corporate sector and the process of credit risk transfer from the banking system to other financial institutions and market participants which is associated with a greater emphasis on the “originate and distribute” business model by banks, could constitute vulnerabilities in a less benign market environment. •  In addition, global imbalances remain a medium-term, low-probability but potentially high impact risk for financial stability. Therefore, despite the strong performance of the financial sector and the benign macroeconomic outlook, there is no room for complacency, given the potential risks and the identified vulnerabilities. This conclusion also reflects the fact that the materialisation of risks and the triggers that could expose vulnerabilities can not be predicted with any degree of certainty. The main message for the financial institutions is to prepare to mitigate potential disturbances through appropriate risk management arrangements including through stress-testing and vigilant monitoring of the financial soundness of their counterparties.
The scale of central bank intervention has been significant, as indicated by the combined balance sheets of central banks in the US, the UK, the euro area, Japan, China and Switzerland, for example. The total now amounts to some USD14 trillion (slide 4), i.e. over 30% of GDP in these currency areas. These exceptional monetary policy measures do, indeed, appear to have exerted downward pressure on interest rates, thus sustaining the real economy in the spirit of the IS/LM model. What are the risks associated with these policies? Despite these positive (short-term) effects, I would first like to argue that the general message of the IS-LM diagram has not been invalidated by recent central bank actions. That is to say, when interest rates are close to zero, it is most appropriate to resort to fiscal policy and monetary policy becomes less effective. Moreover, the current policy-mix can entail risks, to which I would now like to draw your attention. My greatest concern is that the general public could come to overestimate the impact of central banks’ actions and the suitability of their intervention in each and every  1  For a discussion of the impact of fiscal measures in Switzerland between 2008 and 2010, see, “Die Konjunkturmassnahmen des Bundes 2008–2010: Evaluation der Konzeption und Umsetzung der Stabilisierungsmassnahmen,” Swiss Federal Audit Office, May 2012. 2  BIS central bankers’ speeches  economic situation that is deemed “unsatisfactory”. This could result in central banks being perceived as all-powerful, though such expectations are far from realistic.

The Journal can have a significant influence in drawing attention to the financial stability issues that are most important and thus contribute towards the thinking and responses on these issues. It is a process that should have an inclusive participation in this important agenda of financial stability. BIS central bankers’ speeches  3
It could be counterproductive if, in seeking to impose requirements intended to address financial stability, we did so on a timetable that dislocated the banking system and made it more not less vulnerable during the process. Third, statutory powers and loss absorbing resources are necessary but not sufficient conditions for an effective resolution regime. There are other barriers to resolution that also need to be addressed. Resolution must provide continuity, whether continuity of access to financial market infrastructure, continuity of contracts or operational continuity. For example, services such as IT that underpin critical functions will need to be set up in a way that enable them to continue in resolution. The Bank is working alongside the PRA in assessing firms’ readiness to meet operational continuity in resolution. We should however have no illusions about the resolution of a major bank. If it happens, even when the regime is fully in place, it will be a very painful exercise. Resolution is not a magic wand; losses will need to fall on creditors. Even if we are prepared in advance, stabilising a large failing bank will not be easy. But taken together, these reforms mean that we would be able to handle a failing bank very differently today compared to 2008. There are in place now credible options, other than insolvency or bailout, that ensure that bank shareholders and creditors will bear losses if a bank fails.

In addition, there is limited information on regional consumer prices and how much variation there is in regional inflation rates. 8  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  8  Here in the UK, interest rates were lowered from 5% to 0.5% between September 2008 and March 2009 by the Bank’s Monetary Policy Committee (MPC). This took interest rates to their lowest levels in the Bank of England’s over 300-year history. This was augmented with £ of asset purchases between 2009 and 2012, almost exclusively in government securities. In interest-rate equivalent terms, this amounted to a monetary stimulus worth around 7 percentage points. 16  Exceptional times called for exceptional measures. What impact have these exceptional measures had? One simple way to begin to answer that question is to look at how aggregate activity has evolved in the period since. Chart 11a looks at the growth in inflation-adjusted GDP per head across the UK regions since the MPC’s monetary stimulus was put in place. All regions have experienced a rise in nominal GDP per head over that period, averaging 12%. Not all regions have experienced an inflation-adjusted increase, with growth strongest in London (a rise of 6.6%) and weakest in Northern Ireland (a contraction of 4.6%). Unemployment rates rose sharply during the financial crisis. But they have since fallen across every region in the UK since 2011 and by roughly similar amounts, on average 3 percentage points (Chart 12a).