samchain/econo-pairs-v1 huggingface dataset:
(2005), Price-Setting in the Euro Area: Some Stylised Facts From Individual Consumer Price Data, ECB Working Paper No 524; for the United States, see Bils, M. and P. J. Klenow (2004), “Some Evidence on the Importance of Sticky Prices”, Journal of Political Economy, Vol. 112, No 5, pp. 947-985. 6  See, for instance, Sahuc and Smets (op. cit.). 7  See Sahuc and Smets (op. cit.) as well as Cristiano, Motto and Rostagno (op. cit.). 8  See the article entitled The “Activism” of Monetary Policy published in the November 2006 issue of the ECB’s Monthly Bulletin. See also J.-C. Trichet (2006), chairman’s speech delivered at the conference entitled “The ECB and its Watchers IX”, held in Frankfurt am Main on 7 September 2007. 4  BIS Review 135/2008  One way of boosting monetary policy’s effectiveness is to reduce the overall persistence of inflation, which can simply be defined as the period of time that inflation takes on average to return to its initial value after a shock. The overall persistence of inflation can be represented 9 as a function of two factors, apart from the price inflexibility that I have just mentioned. The first factor is linked to the extent to which, when determining prices, agents stay focused on the long-term inflation target rather than allowing themselves to be guided by the most recent inflation trends; in the Phillips curve this is represented by the coefficient on past inflation.

Rapid changes in the banking system in light of credit boom, and global market financial integration impose the need for higher standards of transparency, accountability and governance from the banking system itself. Not only with regard to Bank of Albania, but public as well. Banks should behave responsibly and must integrate the stability of the entire system into their utility function. Financial system reforms Since years the banking systems has been in a constant process of transformation. The Financial Sector Assessment Program (FSAP) marks a significant moment in this process. On behalf of the Bank of Albania I would like to thank IMF and WB, for their excellent efforts on this professional and transparent financial certification of the Albanian Financial System. Bank of Albania remains very much focused in fulfilling the recommendations of the FSAP following the priority and institutional hierarchy. •  Bank of Albania has increased the access and investment opportunities of commercial banks in the securities market. •  The draft on Banks Law is completed. •  Automated clearing house system is operational. •  The number of electronic transfers has increased significantly. There is concrete evidence that shows a continuous reduction of cash economy. •  Bank of Albania has extended its supervisory authority over all non-bank financial institutions that operate within the economic territory of the Republic of Albania. •  Supervisory Board of the Bank of Albania has further increased the transparency of its decision making process.
3 These are shown in Figure 2.a, where the higher repo rate path (the blue broken curve) represents the forecast from December 2008. The lower repo rate path (the red broken curve) represents the Riksbank’s main scenario from February 2009. The Riksbank’s inflation targets are expressed in terms of CPI inflation. However, this varied strongly during the later part of 2008 and in 2009, due to the major changes in the repo rate. This is because the CPI includes mortgage costs. In such a situation, it is reasonable instead to look at inflation measured in terms of the CPIF, which excludes interest rate changes. Figure 2.b illustrates the Riksbank’s forecasts for CPIF inflation, based on the two repo-rate paths. The lower repo-rate path, as proposed in the main scenario, gave an inflation forecast, measured in terms of the CPIF, approaching 2 per cent two years ahead. The higher repo rate path instead gave an inflation forecast that fell widely short of the target during the entire forecast period. Equivalent forecasts for CPI inflation are shown in Figure 2.c. The Riksbank uses a number of measures and indicators to measure resource utilisation in the economy. One of these measures is the output gap, calculated as the percentage difference between GDP and an estimated trend. 4 If the gap is positive, this signifies that the level of activity in the economy is high and that GDP is above its trend level.

If inflation expectations as indicated in various surveys are stable and close to the inflation target a few years ahead, this can be interpreted to mean that the public is confident that the Riksbank will achieve its target. The surveys that TNS Sifo Prospera has carried out of inflation expectations among money market agents, employer and employee organisations and purchasing managers in the retail sector and the manufacturing industry show that this is the case. Figure 14 shows average expectations regarding CPI inflation for one, two and five  BIS Review 32/2010  17  years ahead among all of the participants in the Prospera survey. Inflation expectations five years ahead are close to 2 per cent, which shows that the credibility of the inflation target is high. Inflation expectations for shorter horizons are based to a greater degree on current actual inflation. 11 The exceptional circumstances for monetary policy that have followed in the wake of the financial crisis, with substantial and rapid cuts in the repo rate, have pushed down CPI inflation to unusually low levels. This, together with the severe downturn and the uncertainty that prevails concerning the recovery of the economy, means that it is hardly surprising that short-term inflation expectations are now below the target. How well did the market’s expectations regarding the repo rate match the Riksbank’s repo-rate path? Since February 2007, the Riksbank has published its own forecast of the development of the repo rate in the period ahead.
How should we react? Not by less Europe. This would be a mistake if we want to take collective control of our destiny in this new world. But by a “better” Europe, less caught up in the detail, more focused on a few key priorities, and more efficient. To achieve this, Europe needs the energy of Germany and France, and of their remarkable friendship. I will now cite Chancellor Helmut Kohl: “The Germans and French must together build the hard core of the European Union – a union that sees itself not merely as a common market, but as a community of values, a democracy based on freedom, the rule of law and the social responsibility of the State”.3 Naturally I won’t talk to you this evening about the French election debate: I will simply say that as friends of France, you must not underestimate the strength of its institutions. I will talk to you even less about the German election debate. But I strongly believe that after these democratic elections, whatever the outcome, the governments of our two countries will have to confer to decide on a number of shared bilateral projects, and above all prepare a common initiative for Europe. Because for Germany and for France, the other country is certainly the best possible partner: there is no serious alternative, neither in the east nor the west for Germany, nor in the south for France.

As Jens Weidmann and I wrote last year, the equity financing of businesses, across European borders, must be a priority. Europe is lagging far behind in this area: such financing only represents 67% of GDP in the euro area compared with 125% in the United States. Thus, innovation, which is inherently more risky, is less well financed in Europe. The second project, on which we could make progress after the elections that will take place this year, is a collective economic strategy in the euro area. I know that when the French talk about coordination in Europe, the Germans sometimes think that it may be a new way to wriggle out of reforms. This deadlock must be broken: we need both national reforms and a European coordination. Growth and employment would be stronger in Europe with more structural reforms where they are a priority, such as in France and Italy, and more fiscal or wage support in countries with room for manoeuvre, such as Germany. Regarding reforms, like you, I would like France to pick up the pace; I say it frequently in my own country. But you must not consider that your French neighbour is “unreformable”. France has not been immobile over the past few years: pensions have been reformed, corporate charges have been cut considerably, and deficit reduction targets have been met. In practice, in order for this European coordination to exist, the euro area needs an institution that inspires confidence between countries.
As far as risk appetite and capitalisation are concerned, the situation of domestically focused banks has not changed significantly during the last six months. On the one hand, banks’ risk appetite has not diminished overall. This is substantiated by the following: First, in the case of new mortgage loans, both the loan-to-value ratios and loan-toincome ratios have remained at a high level. Second, interest rate risk has not declined and remains high. Third, the already low margins on interest income have continued to decrease. There are nevertheless considerable differences from one bank to another, in particular as to how their risk appetite has evolved. Certain banks have reduced their risk-taking significantly during the last quarters, while others have increased their exposure to risk. On the other hand, average capitalisation for domestically focused banks relative to regulatory requirements is still at a historically high level. However, as the SNB already emphasised in its latest Financial Stability Report, the resilience of these banks, as measured by the regulatory capital indicators, is overestimated. Therefore, six months after being announced, the stricter capital requirements for mortgages and the revision of the self-regulation rules for mortgage lending have not, or not yet, led to a significant trend reversal in mortgage and real estate markets, although there is some anecdotal evidence pointing in that direction. It cannot be ruled out that the impact of these measures has not fully materialised or is simply not yet reflected in the data available.

In addition, as part of their strategic reorientation, both big banks announced measures which will further enhance their resilience. For instance, both institutions are planning to further expand their loss-absorbing capital, to reduce their risks and, in particular, trim their balance sheets as well as to pursue a policy of dividend restraint. The National Bank welcomes the increase in the big banks’ resilience achieved thus far, as well as the announced measures to further improve their capital situation. The consistent  BIS central bankers’ speeches  1  implementation of these measures is important for two reasons: First, leverage has remained high despite the improvement in the capital situation. Second, the risks in the environment – and thus the associated potential losses for the big banks in the event of a further escalation of the European debt crisis – remain considerable. Situation at domestically focused banks I would now like to turn to the situation at domestically focused banks. The risks associated with the environment in which these banks operate increased during the past six months. Indeed, the isolated signs of a slowdown of growth in the mortgage and real estate markets observed in the second quarter did not materialise in the third quarter. In particular, prices in the different segments of the residential real estate market continued to rise at a sustained pace. At the same time, growth in the mortgage loan volume was still considerably higher than GDP growth. Imbalances have therefore grown.
Connectivity among centralised Shariah advisory authorities The final point is on increasing connectivity among centralised Shariah advisory authorities to promote mutual respect and knowledge-sharing. Islam has flourished with a strong foundation of knowledge, wisdom and tolerance among its scholars. Differences in ideas and open discourses to assess the veracity of knowledge – have always been practiced in many Islamic societies. While achieving consensus is ideal – full appreciation of differences in circumstances and considerations is equally important and necessary. I have observed over the years that the implementation of Islamic finance varies from one jurisdiction to another. Rightly so, this reflects the different stages of development and diversity in local customs, market conventions and cultural norms. I believe through frequent and constructive dialogue, Shariah boards and advisory authorities will become more appreciative of the many differences in business and economic environment – that lead to different Shariah interpretations. Concerted efforts to cultivate greater understanding of the variations in fiqh interpretations and approaches to Islamic finance development are positive steps towards harmonisation that can deliver certainty of Shariah implementation in the global Islamic financial system. This roundtable meeting organised today is just a starting point of a long journey. It is my hope that this meeting offers a productive networking opportunity for all of us to identify common issues; explore mutually beneficial opportunities; and implement positive changes in our financial systems.

This meant that private sector solutions were prioritised, as has been seen in the processes that have unfolded in the past few months. Today, it is fair to say that the restructuring and recapitalisation of Spain’s financial institutions is well under way. It is now just a case of formalising and implementing the agreements reached. As a result, Spain’s deposit institutions that did not already have sufficient capital have now secured it, either from the markets or from the FROB. The Banco  8  BIS Review 86/2010  de España has conducted stress tests to verify that all institutions – banks, savings banks and credit co-operatives – will actually have sufficient capital available, not only for what would currently seem to be the most reasonable scenarios, but also for complex growth scenarios in the near future. Accordingly, before end-June, the Banco de España will take the steps necessary to formalise the processes already agreed and to ensure they are correctly implemented. If, by month-end, any of these processes has failed, or any institution has been left behind, the Bank will act, using the mechanisms envisaged for this purpose in the FROB legislation. Moreover, the Bank intends to publish the results of these stress tests, to reveal the deterioration estimated, the consequent capital requirements and the capital funding committed, to provide the markets with a perfectly clear idea of the situation of the Spanish banking system.
The focus of my discussion will be on the latter part of this period. This is because developments in 2000-2001 were illustrated very clearly in last year's assessment. Price rise and monetary policy 2001 The fact that inflation was over the target level during the second half of 2001 and first half of 2002 was largely due to supply shocks similar to those we are experiencing now. Food prices rose considerably as a result of mad cow disease, foot-and-mouth disease and higher prices for fruit and vegetables resulting from poor harvests. There was also a rise in electricity prices. The Riksbank's  BIS Review 15/2003  3  assessment was then, as it is now, that these price rises were essentially temporary and inflation would soon fall again. This proved to be the case and in this sense the upturn in inflation 2001 did not comprise a serious monetary policy problem. However, the inflation rate rose even after adjustments were made for food and energy prices; there appears to have been a rising trend in various measures of underlying inflation from early 1999 to early 2002. It has since been shown that the Riksbank and other forecasters overestimated GDP growth and underestimated inflation when we made our forecasts for 2002 during 2000 and 2001. Perhaps we were a little too optimistic with regard to the economy's capacity to grow without inflation accelerating.

Some figures indicate that most of the adjustments have now been made, but the picture is not unambiguous. Nevertheless, a recovery is under way, after what must be regarded in many areas, and particularly in Sweden, as a fairly mild  2  BIS Review 15/2003  slowdown. Our forecasts indicate an average GDP growth over the coming years in line with the economy's long-term sustainable rate and resource utilisation is expected to remain largely unchanged over this period. This means that economic activity and the labour market are not expected to put any great pressure on prices and wages at present or in the coming years. There is, of course, a risk that developments will follow completely different paths than those we anticipate in our main scenario. This could in turn entail both upside and downside risks for inflation. The downside risk that concerns us most is connected to international developments. There are problems in the euro area in particular that could lead to a weaker development. The upside risks are mainly linked to domestic price-setting and wage formation. The rise in energy prices pushes up costs in other parts of the economy and can spread. It could also affect expectations and wage demands. We are facing collective wage bargaining rounds in the autumn, which will play a decisive role for the future of the economy.
It was, of course, difficult for the authorities in Thailand and elsewhere in the region to recognize, after so many years of outstanding macroeconomic performance, that serious underlying deficiencies could seriously jeopardize their track record. This certainly contributed to the delay in taking the necessary corrective action. And at last, in the absence of convincing policy action, the storm broke. We all have been troubled by developments in the Thai economy, both because they have been so costly for Thailand and its neighbors and because they were so preventable. But at least their origins are by and large clear. What is less evident, and therefore more unsettling to all who are trying to make sense of broader regional developments, is how the crisis spread as it did to economies such as Indonesia, Malaysia and the Philippines, where current account deficits were generally smaller and foreign direct investment more substantial. Although it may be some time yet before we have the complete answer to this question, some elements of the explanation are becoming clear. Part of the explanation lies in the extent to which developments in Thailand have affected conditions in neighboring countries. For example, in expectation that the depreciation of the baht would erode the competitiveness of Thailand’s trade competitors, their currencies also weakened. And as these currency slides acquired an almost self-perpetuating character, the debt service costs of the domestic private sector increased.

To this end, the Fund has developed a set of standards regarding the quality, coverage, frequency, and timeliness of data made available to the public and has established a Dissemination Standards Bulletin Board on the Internet to which 43 economies have now subscribed, including Hong Kong, Indonesia, Korea, Malaysia, the Philippines, Singapore, and Thailand. Procedures have also been put in place through which countries can make known to the markets, and to the public in general, the Fund’s views on their economic policies and situation. Recognizing the importance for growth of creating an environment that encourages private sector activity, the Fund has also become more active -- in close collaboration with the World Bank, regional development banks, and others -- in promoting the “second generation” reforms that I referred to earlier. These include developing an institutional framework that will, among other things, provide an efficient, professional justice system, help limit arbitrary and corrupt government practices, and set clear regulatory and supervisory standards for markets, including financial markets. They also include policies to improve the quality of public expenditure, making adequate allocations for education and health to help ensure that individuals are able to realize their potential to participate actively in a market economy, and providing social protection to those who bear the brunt of the changes of a dynamic economy. Third, the Fund has taken action on several fronts to strengthen its resource base and adapt its procedures and financing facilities.
Several other features of household decision-making over recent years might also plausibly reflect the effects of insecurity: weak transactions in the housing market, which are 20% lower than their pre-crisis average; subdued job-to-job flows in the labour market, which remain below their pre-crisis average; and real wages which remain lower than historical relationships can explain, as workers’ bargaining power has been sapped. Over the past year, this cautious behaviour has been evident in households’ response to the income windfall arising from the fall in oil prices. This has boosted real incomes by perhaps 0.4%. And it appears also to have boosted consumer confidence. What it appears not to have translated into, or at least not yet, is higher consumption: retail spending growth is little different than before the oil price fall (Chart 16). One interpretation is that consumers are simply waiting to see if the fall in oil prices persists. My preferred interpretation is that it reflects instead the asymmetric response of a cautious consumer: good news has been banked, not blown. Consumers are pleased their glass is now less than half empty. But they are no more willing to drink it. This cautious behaviour is, to a degree, also mirrored among companies. This can be seen in the weakness of global investment since the crisis, despite the cost of company borrowing being at its lowest-ever levels (Chart 17). Uncertainty-induced weakness in investment has provided a continuing drag on recovery, globally if not nationally.

This brings me to the trend of the Swedish banks in recent years to open branches and subsidiaries in other countries, foremost in the Nordic and Baltic region but also elsewhere such as in Germany and the UK. At the same time foreign banks operate in Sweden – the restriction on foreign banks which I mentioned earlier was abolished many years ago - and a Danish bank has acquired a significant market share in Sweden of more than ten percent in some activities. This leads to the question: Which are the benefits and challenges from cross-border banking? From a stability view, diversification is a benefit. The bank group can diversify its risks between several countries and thus protect itself against volatilities in macro economic and other developments among its customers. Hopefully, if there is an economic downturn in one country or sector, this can be compensated for by good economic conditions in another country or sector where the bank group operates. A cross-border bank may become more profitable because of “economies of scale”. Many bank investments in new products and systems, in particular IT systems, are initially very expensive, but the cost of adding more customers to the same product or system is marginal. Of course, the bank can obtain the same benefits by growing domestically, but the major Swedish banks have already reached so large market shares that further domestic growth is limited.