samchain/econo-pairs-v1 huggingface dataset:
I therefore believe that there are good prospects for fiscal policy to play the more active role needed as long as the scope for monetary policy is limited – without jeopardising the sustainability of public finances. The importance of an open discussion Let me wind up. The aim of my speech today is to stimulate discussion of issues that I believe are important. I do not claim to deliver proposals that are ready to be taken ‘off the shelf’, and I am aware that much additional work is required before these thoughts and ideas can be put into practice. There are most likely also several aspects and complications that I have not thought of. Nevertheless, no problem can be solved by turning a blind eye to it instead of dealing with it, even though the solution may involve changes that may seem uncomfortable and require us to start thinking in a slightly new way. This process will be easier if we can have a free and open discussion with the overall goal of making the Swedish economy work as well as possible. Of course, I am also fully aware that these are issues for the political system to address and resolve. Nevertheless, a debate with many participants and views is always a good start. those who are sceptical about strategy changes and about fiscal policy playing a more active role; see, for example, Svensson (2021).

However, the discussion that has arisen at least indicates that there may be reason not automatically to regard public deficits as a negative thing, as we have perhaps become too accustomed to doing.15  Trend towards lower policy rate and public debt For Sweden, the changed conditions for monetary policy and fiscal policy are clearly illustrated by the development of the repo rate and public finances over the last twenty-five years or so (Figure 2). As the real global interest rate has fallen, the repo rate has had to be lowered to ever-lower levels for each business cycle. Despite this, it has been difficult to keep inflation around 2 per cent on a more lasting basis. During the same period, the consolidated gross government debt, the so-called Maastricht debt, has fallen from just under 70 per cent of GDP to about 40 per cent. The downward trend has certainly slowed down from time to time, most recently in connection with the coronavirus pandemic, but is still very clear. At a more general level and seen over the period as a whole, one may argue that this development also reflects the fact that macroeconomic policy has not been conducted in such a way as to keep public debt as a share of GDP stable. This has, of course, been a deliberate strategy as Sweden has wanted to reduce its debt. At  14 It is worth noting, however, that, from time to time, this problem also arises when monetary policy is dis-  cussed.
First, and foremost, zero interest rates and QE have inflicted big losses on the savers and individuals, funds and institutions reliant on interest incomes. Deposit rates in the US have dropped by 3 percentage points from an average of about 3.5% in 2007. As interest incomes approach the zero mark, many depositors, especially low- and medium-income households and retirees have had to cut their spending. And, while it can be said that “a saver’s loss is a borrower’s gain”, this has not been the case for every borrower. For example, because of negative equity or bad credit scores, many US families are stuck with hefty mortgage rates. In Hong Kong, deposit rates have also dropped by about 2 percentage points since 2007. With total deposits of about $ trillion currently in our banking system, you may wish to think about the potential loss to savers. 12. Secondly, most US families are still in the process of de-leveraging after the global financial crisis and as a result, growth in consumer demand remains lukewarm. On the corporate front, notwithstanding low borrowing costs, many US companies have been reluctant to invest domestically in expanding capacity and enhancing productivity. In fact, annual growth in business investments in the US has averaged only 3.7% since 2009, well below the average of 5.8% in the past economic expansion cycles. At the same time, many US corporations have spent their cash pile to buy back their own shares.

While the mainstream thinking recognises that zero interest rates and QE are not without side effects, they still believe that the benefits outweigh the costs. Only history will tell. How should Hong Kong adjust to the US exit from QE? 18. Let me offer my two cents on the future outlook. The US interest rate will quite possibly start to normalise next week. The US economy will continue to grow at a moderate pace, and the US dollar should remain strong for a period of time. However, it is hard to predict how interest rates, bond yields, fund flows and asset markets will react as we are again entering uncharted waters, much the same as when QE was first launched. Moreover, economies interact with each other and respond to external factors differently, thus making it more difficult to predict market responses. Nevertheless, one thing is certain: a period of difficult adjustment lies ahead for EMEs. Energy and commodity prices will continue to be suppressed. EMEs will continue to witness capital outflows, currency depreciation, economic slowdown and downward pressure on their asset markets. And, Hong Kong will not be immune. We should be prepared to face a period of capital outflows, rising interest rates and slower growth. Asset markets, including the property market, will also face downward pressure. However, if there is an orderly adjustment to asset and property prices, this could provide a respite for prospective homebuyers and business owners squeezed by hefty rents.
So economic prospects depend crucially on private final domestic demand and net exports picking up the baton; fortunately there have been signs that handover might be starting to take place in the latest quarterly data. Private final domestic demand fell sharply in the recession. Consumer spending decreased by more than 4% over the five quarters from 2008Q2, as the prospect of reduced real incomes led households to cut their borrowing and build up precautionary savings balances. During this period, the household savings rate rose by almost six percentage points. Since then, we have seen a modest recovery in consumer spending, and measures such as the CBI Distributive Trades Survey suggest that recovery is likely to have continued into the final quarter of this year. The prospects for household spending through next year and beyond depend crucially on households’ expectations of their future incomes, as well as their balance sheet positions. Consumer confidence measures have generally weakened through this year, possibly reflecting concerns about the prospective fiscal consolidation. An open question is how far the impact of that consolidation has already been taken on board by households in their spending decisions, and how much adjustment is yet to come. The annual survey of households’ financial positions carried out for the Bank by NMG Consulting 1 included some special questions on this topic and found that, while the majority of households expected to be affected in some way, less than half had so far responded by spending less, working longer hours or looking for a new job.

Again I am happy to inform you that the central bank in partnership with the Bankers Association of Zambia are in the process of developing credit reference bureau guidelines and will in the near future issue licences to deserving companies. Lastly, but not the least, the issue of lack of an effective secondary financial market in Zambia is being addressed with Commencement of work on the Financial Sector Development Plan (FSDP). Let me join the Honourable Minister of Finance in wishing Barclays Bank Zambia PLC the very best of success with the launch of the Home Loan product. I thank you!! BIS Review 6/2006  1
The financial support through the banks’ credit market during the crisis years has been moderate, but permanent, therefore supporting the economic recovery of the economy. Anyway, in May 2013, the annual credit growth was 3.7%, pointing to a gradually slowing pace during 2012 and first half of 2013. Possible reasons for such trends in the credit market are: effects of financial deleverage process of foreign parent banks, banks’ deteriorating risk perceptions against the backdrop of still anemic economic activity and uncertainty regarding the global environment, and the present (though moderate) increase of credit risk in the system, as well as the potential. The NPL ratio reached 11.4% in the first quarter of 2013 being one the main challenges for the banking system that is closely monitored by the NBRM. Still, it is among the lowest in the group of the EU candidate countries. Regarding the future prospects for credit flows it can be noted that stable funding sources (loan-deposit coverage ratio of around 90%), strong liquidity position, and capital adequacy ratio continuously being twice as high than the minimum required, point to room for further increase of lending in the domestic economy. The improvement of the banking sector regulation in view of further implementation of the Basle and EU standards will remain being a high priority on the agenda in this field.

In turn, as supervisors on the Basel Committee have been developing standards for the disclosure of components of capital, for loan accounting, and for other topics of mutual concern, we have sought out the views of representatives of the accounting profession. This dialogue will continue. I should add that we are currently seeking new opportunities for discussion on issues of mutual concern with accounting standards-setting bodies and private sector accounting professionals. Current status & future work for the Basel Committee  I know that you are eager to know where the Committee stands at the moment. As I suggested, the Committee and its member organisations are closely reviewing all of the comment letters received so far. Working groups have been discussing potential refinements to the proposals to address the concerns raised during the consultation. The Committee itself will meet tomorrow. Our agenda is straightforward: we will evaluate the industry’s views and consider the solutions proposed by the Committee’s working groups. No conclusions are foregone at this stage. The members of the Committee are in agreement that our primary responsibility is to develop an agreement that is sensitive to risk, forward-looking, and fit for the service of twenty-first century banking. But we are also conscious of the need to avoid unnecessary burden and to provide the industry with as much certainty as possible.
If the inflation target were lower, a relative increase for some might necessitate lower nominal wages for others. So, two per cent inflation serves as an anchor for the economy. The inflation target should be the basis for wage negotiations, rent agreements, tax increases, etc. Thus, it is necessary that the target is credible, that people trust that it will be met. Before, the idea instead was that the fixed exchange rate would imply an inflation target in line with the inflation rates of our competitor countries. But this approach never worked in the same way as the inflation target. Does monetary policy affect economic growth? It is fairly obvious that when inflation is around 10 per cent the economy becomes unhealthy. Economic agents seek to profit from the inflation. Much depends on how the tax system is designed. In Sweden, it encouraged borrowing and speculation in real property and shares. Investment  1  Strictly speaking it should be the price developments for output, i.e. the GDP deflator, but since the GDP deflator can be estimated to increase by around 2 per cent a year if consumer prices rise in line with the inflation target (2 per cent), this approximation works. 2  BIS Review 84/2005  decisions take on a different focus than when macroeconomic conditions are stable. In Sweden, we saw a property boom in the 1980s and an overheated economy that had to be dampened.

Between 1975 and 1995, Swedish inflation averaged 8 per cent a year. Real wages rose by only 0.5 per cent a year. Swedish companies’ competitiveness deteriorated and industrial production dropped. Sweden slipped from 4th place in the OECD’s standard-of-living league to 18th place – below the average for OECD countries. We became a relatively poor country in Europe and the industrialised world. Meanwhile, deregulation in the credit market during the 1980s resulted in a sharp expansion in credit, with an accumulation of debt among the general public as a consequence. Demand increased but supply was weak and productivity growth low. The economy overheated, inflation picked up and competitiveness was eroded. In 1990, the international economy began to weaken and prices of assets and property fell. The economic climate deteriorated dramatically and eventually the banking crisis hit the country, with large loan losses as a result. The Riksbank defended the fixed krona exchange rate to the very last, but after large currency flows and extreme rises in interest rates the fixed exchange rate was abandoned on 19 November 1992. The outcome of the performance during the 1970s and 1980s was that we slipped down the standardof-living league, suffered mass unemployment and saw a drop in GDP of 4-5 per cent. It was at this juncture that an explicit inflation target was introduced. The depreciation of the krona in 1992-93 of almost thirty per cent gave the manufacturing industry a powerful boost.
After the most recent financial crisis, which demonstrated how costly a crisis can be as a result of a large build-up of debt, the pendulum has swung towards the belief that monetary policy should to a greater extent lean against the wind, and take such imbalances into consideration. Personally, I think that as long as there are no other tools in place that can counteract the build-up of financial imbalances, monetary policy must take into account the risks the imbalances entail. Let me explain my view of these questions before I move on to summarise the information received during the summer. BIS central bankers’ speeches  3  Monetary policy and financial imbalances International experience shows that a high level of indebtedness in all its forms can pose major risks to the economy. It makes the economy more vulnerable to various types of shock, such as a fall in house prices, and it can also increase the risk of shocks actually occurring. The flexible inflation targeting conducted by the Riksbank is compatible with giving consideration to this type of financial imbalance in our monetary policy decisions. Such imbalances ultimately risk jeopardising both the stability of the real economy and the inflation target. In a really bad scenario the imbalances could also entail risks for financial stability. As the Riksbank’s two main tasks are to attain price stability and financial stability, we must take these risks into account.

In the July report we describe a potential scenario in Sweden if house prices were to fall at the same time as indebtedness is high.3 Experiences from other countries show that this would probably mean that households increase their savings and reduce their consumption, which would subdue demand in the economy and push up unemployment. The effects on GDP and unemployment may therefore be both substantial and long lasting. Relevant examples here are Spain and Denmark. Experiences also show that the higher households’ debts are, the greater the negative consequences will be of a fall in housing prices.4 At the same time, there would probably be long-lasting difficulties in attaining the inflation target, as the uncertainty over future inflation increases significantly. Conducting a flexible inflation-targeting policy in this context involves taking into account the risk of a crisis occurring by balancing the effects within the normal forecast period against the long-term risks I described. There is of course considerable scope here for different assessments, for instance, to what extent monetary policy affects the probability of a crisis, as well as how a crisis scenario would play out. These are difficult monetary policy deliberations without easy answers. As Sweden is a small country with its own currency and strongly dependent on other countries, it is particularly important that we do not create  2  See, for instance, M. Schularick and A.M. Taylor (2012), “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008”, American Economic Review 102, pp. 1029–61.
The real failure of economists was that too much energy was devoted to forecasting – to trying to assess whether economies would turn down – and not enough was spent analysing the question of “well, what if they do; how bad could it be?” And as a result, the financial system was unprepared. It was not a failure of economics. It was a failure to apply economics to the right question. Without economics, the answers to “how bad could it be?” relied all too often on recent historical precedent; on this time being different. 11  And, even more dangerously, they relied on market measures of risk; indicators that – as recent work at here the LSE Systemic Risk Centre shows – often point to risks being at their lowest when risks are actually at their highest. 12  The Financial Policy Committee’s mandate is to break free of the shackles of forecasting, to free us from trying to predict if the economy will turn down, and to apply economic analysis to the question of how bad it could be if it did. 13  The re-focussing of economic research since the crisis has supported us in that. It has  established, for example, how far: 14  Recessions that follow credit booms are typically deeper and longer-lasting than others ; 15  Over-indebted borrowers contract aggregate demand as they deleverage ;  While they have high levels of debt, households are vulnerable to the unexpected.

5  Risks can no longer be shared. Companies and households must protect themselves. And in the limit, payments and transactions can’t take place. Economic activity grinds to a halt. These are the amplifiers that turn downturns into disasters; disasters that in the past have cost around 75% of GDP: £ for every person in this country. 6  So the job of macroprudential policy is to protect the real economy from the financial system, by protecting the financial system from the real economy. It is to ensure the system has the capacity to absorb bad economic news, so it doesn’t unduly amplify it. This real economy focus doesn’t for a minute mean that macroprudential policy is any sort of substitute for monetary policy in managing the regular business cycle. In fact, it fundamentally complements monetary policy. It relieves the burden on monetary policy to ‘mop up’ vigorously if and when the financial system amplifies a downturn. And if the 2008 financial crisis proved one thing only, it was the failure of the doctrine that monetary policy had sufficiently powerful floor cleaning equipment to protect the real economy from the full force of such spillages. 7  Focussing on the ultimate aim – the real economy – also reminds us not to intervene in ways that themselves damage the real economy. Building a system that could absorb all shocks would be counterproductive. In the same way, road safety would be dramatically improved by a universal 10mph speed limit.
enhancing the existing regulatory  The risk management framework of non-bank financial institutions will also  Central Bank of Sri Lanka – ROAD MAP 2017  21  be strengthened. We will amend the  encourage companies to pursue organic  existing Directions on classification and  consolidation in order to strengthen the  provisioning for non-performing loans  non-bank financial sector. and advances in line with the new Accounting Standards in order to harmonise the differences between regulatory provisioning and accounting impairment. In order to mitigate undue exposures and reduce high concentration risks on investments, guidance will be given for valuation of immovable properties of LFC/SLC sector. Further, minimum liquidity  In addition, more attention will be given to distressed finance companies, by resolving the difficulties largely through mergers and recapitalisation in 2017. We intend to establish an Enforcement Unit to prosecute the Board of Directors and senior management of failed finance companies who are involved in fraudulent activities and malpractices. requirement for the sector is expected  With a view to strengthening the  to be more stringent to create additional  existing enforcement framework on  liquidity buffers. prohibited schemes, the Central Bank  Measures will also be taken to enhance disclosures and transparency through the introduction of a new regulatory framework for the preparation, presentation and publication of the Annual Audited Accounts/Quarterly Financial Statements and periodical returns.

In the medium-term, our overall aim is to ensure the stability in the financial sector through identifying emerging vulnerabilities in this sector; adopting  Financial system stability is founded on  early corrective actions; and  the confidence of the public in the  implementing a series of measures to  financial system and depends on the  further strengthen financial institutions,  soundness and resilience of principal  markets, infrastructure and safety nets. components of the financial system to collectively withstand risks emanating  Our medium-term plan is to have a financial system, which offers the full range of financial products and services  Central Bank of Sri Lanka – ROAD MAP 2017  18  to all economic sectors, including  change, both nationally and  agriculture, infrastructure,  internationally. Considering the need for  manufacturing, particularly small and  upgrading of statutes in line with these  medium enterprises (SMEs), and trade  developments, we expect to initiate  to achieve broader economic objectives  amendments to the existing Banking  of our country. We need to have a well-  Act. Accordingly, steps will be initiated  planned and an ambitious agenda for  to streamline and strengthen the  financial sector development and  regulatory and supervisory framework  reforms ranging across financial sector  through the proposed Banking Act  policies with a vision of innovative,  amendments. We will consider  robust and competitive financial  provisions for reinforcing the Central  systems.