samchain/econo-pairs-v1 huggingface dataset:
But the large fluctuations in growth rates, capital flows and exchange rates are in themselves problematic and create uncertainty regarding economic developments in the emerging markets. A divided Swedish economy The Swedish economy is dependent on developments abroad, and of course has been affected by the financial crisis and economic downturn in recent years. In an international comparison, overall quantities such as GDP and employment have nevertheless developed well since the financial crisis. BIS central bankers’ speeches  1  However, behind the overall picture is a divide, where household finances in particular have been strong. Their disposable incomes have increased every year during and since the crisis (see Figure 1). Growth in consumption has also been good. Housing prices and loans to households have increased rapidly, probably partly due to strong households finances and an expansionary monetary policy (see Figures 2 and 3). Developments in the corporate sector have been weaker, which is reflected in weak growth in exports, low investment and only modest growth in loans to companies (see Figure 4).

A lower repo rate now and faster increases in the coming period seems to me a better monetary policy, when weighing the risks against the opportunity to return to the inflation target sooner and to have a more balanced resource utilisation (see Figure 7).10 The assessments and calculations I refer to here are based on the general framework presented in our Monetary Policy Report published in July.11 It is not entirely clear how this reasoning should be translated into recommendations for practical monetary policy. We are working on this issue within the bank. It scarcely needs to be said that the assessments and calculations I have implied today are uncertain, and that they will remain uncertain even when work on these issues has progressed further.12 Further measures are needed to strengthen financial stability In conclusion, I would like to discuss how the new framework for macroprudential policy affects my view of how monetary policy should be conducted. It is good that one single authority, Finansinspektionen (the Swedish Financial Supervisory Authority), is given a clear responsibility for decisions on supervisory measures. In this way, we avoid the problem that different authorities may try to put responsibility on others, which could have arisen if the responsibility was shared between several authorities. At the same time, it is positive that several authorities, including the Riksbank, are given a role to play in the work on macroprudential policy through the new financial stability council.
This is the best way to ensure sustainable market access supported by a robust growth outlook. Recent empirical estimates based on the distance-to-frontier approach show the gains that could still be achieved. In Portugal, closing the gap from best practices via a fast implementation of product, labour and welfare state reforms would lead to an increase in percapita GDP by 13.5% in 10 years.2 In these projections, not only the pace of implementation matters, but also the degree of ambitiousness. If reforms target only a partial closure of the gap vis-à-vis the best performers then of course the GDP gains will also be reduced. All this points to the need to establish a clear link between notional reforms and actual outcomes via an outcome-based accountability framework, which can increase or make more effective the implementation process. The need for structural reforms in all euro area countries Despite difficulties, the impetus for reform has been strong in the stressed countries, while it has been much weaker in the rest of the euro area. This is the natural outcome of a crisisdriven reform process. However, the crisis has clearly shown that a strategy of postponing reforms is self-defeating, as it contributed to the accumulation of imbalances and vulnerabilities in good times and increased the cost of adjustment in bad times. It is therefore crucial that the reform process is strengthened in all euro area countries, also those not affected by the crisis.

This helps spread lending capacity across the country, further contributing to balanced growth and a sustained economic expansion. Trade Good domestic policy cannot, on its own, guarantee balanced growth in an open economy like the UK’s. Our fortunes are also tied to those of our trading partners. In recent years those fortunes have been modest. Demand from the UK’s traditional markets, such as Europe, is a staggering 25% below a continuation of its pre-crisis trend. This is because the UK relies heavily on the slow-growing advanced economies (Chart 1). In contrast, the Commonwealth countries, which account for only a tenth of UK exports, have grown over three percentage points faster on average each year than our major trading partners between 2008–13. The need to diversify trade to faster-growing economies in the Commonwealth and emerging markets is clear. This will require both the continued initiative of UK businesses and a determined trade strategy. In short, we all need to be inspired by another great Scottish figure, David Hume. Hume brilliantly showed that free trade was beneficial to all; that it acquainted nations “with the pleasures of luxury, and the profits of commerce”, spurring them on “to further improvements in every branch of domestic and foreign trade.” 2 His ideas helped usher in the first great era of globalisation during the 19th century. In this wave, the British economy grew twice as fast as during the preceding century (Table 1).
In addition, financial stability, unlike price stability, is not easily summarised by one statistic (inflation in the case of price stability), so we therefore need in any case to look at a range of indicators. What I suggest instead is a slight evolution of the ECB strategy, to achieve a more “integrated” framework. To formalise this approach, one option worth considering could be to renovate and extend the present second pillar into a “financial and monetary” pillar, alongside the economic one. More specifically, let me mention a few examples of variables that could be monitored under this new pillar: Indebtedness of firms and households; Bank balance sheet information, which is useful for assessing the functioning of the bank lending channel (including in a forward-looking way); Indicators of excess risk tolerance and excess credit, which provide information on the risktaking channel; Stock and house prices, which provide information on the asset price channel. This list could be of course modified and completed. In fact, we already monitor many of these variables. The point of having a structured pillar is to formalise this analysis – including on proportionality of our measures – and ensure we have no blind spots. Such considerations would help us optimise the monetary policy toolkit and fine tune it with the numerous tools that central banks have now at their disposal. To some extent, we have already crossed that bridge in adapting existing instruments in order to take financial stability considerations into account.

Timothy F Geithner: The economic dynamics of global integration Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Forum on Global Leadership: US Competitiveness in a Globally Integrated Economy, Washington DC, 25 July 2007. *  *  *  We are meeting at a time of relatively favorable U.S. economic performance, but also of growing concern about our relative position in the world and our longer-term economic prospects at home. On a wide range of measures, the American economy and American business are performing well. We are in the fifth year of expansion in the United States and in the midst of the strongest global economic expansion in more than three decades. Corporate profits as a share of GDP are close to the highest level in four decades. Corporate balance sheets are healthy. The six-month trailing bond default rate has stayed near zero this year, and the delinquency rate on commercial and industrial loans at banks remains extremely low. We have seen a substantial acceleration in trend productivity growth over the past decade. And although productivity gains have slowed recently, as they typically do as expansions mature, U.S. companies remain at the forefront of changes in science and technology—and in the application of those innovations to business processes across a range of industries. Overall, the U.S. economy continues to display remarkable resilience and flexibility, despite a range of adverse shocks.
Ladies and gentlemen, In Romania, the initial economic impact of the pandemic was strong, compounding the existing imbalances and the depreciation pressures on the domestic currency and entailing higher liquidity needs. Consequently, the immediate objective of our central bank was to maintain banking system stability and liquidity, for the proper functioning of public finances and the real 2/3  BIS central bankers' speeches  economy; at the same time, the dosage of measures sought to avoid an excessive and unnecessary depreciation of the leu. Over a broader horizon, our aim was to preserve confidence that economic and financial equilibria are kept under control. In this vein and in full compliance with its mandate and statutory independence, the NBR promptly adopted a package of proportionate and effective measures to support the Romanian economy. Given the exceptional nature of the pandemic, the NBR cooperated more closely with the Government of Romania, particularly with the Ministry of Finance, to avoid any conflict between monetary, macroprudential and fiscal measures.

By choosing this topic, the National Bank of Moldova and the central bankers at its helm prove, yet again, if it were still needed, that they are constantly preoccupied with playing an active role in the development and modernisation of the Moldovan society on the road to the European Union. Let me take the opportunity of opening this event to highlight – in my capacity as a long-standing partner of the National Bank of Moldova – the remarkable progress your institution has made on its path to a European-style central bank. When acknowledging the road followed by your institution, I cannot help recalling the bumpy ride of the National Bank of Romania in the same direction, the challenges we faced along the way and how we overcame the hurdles. That is why I believe we, at the NBR, are qualified to perform an accurate, realistic evaluation of the progress achieved by our colleagues in Chișinău, all the more so that our central banks boast a tight bilateral institutional cooperation spanning three decades, alongside the strategic partnerships between our institutions with EU, IMF and World Bank support. Dear colleagues and dear friends in Chișinău, you can be sure of the NBR’s full support in the National Bank of Moldova’s endeavour to align to European standards and practices. Ladies and gentlemen, Distinguished audience, The primary objective of a European central bank is to pursue price stability in the domestic economy.
Basel III is a complex set of measures that attempts to respond to the regulatory failings that the crisis highlighted. First, many banks found themselves at the start of the crisis with low levels of capital. Second, this same capital had an excessive proportion of hybrid instruments, with a limited or, at least, uncertain loss-absorption capacity. Third, and finally, the procyclicality of Basel II meant there was a trade-off between capital requirements and growth, which could push banks to lessen the risk they assume, with the subsequent adverse impact on credit and the economy. Basel III has increased the minimum level of core capital, the highest-quality capital, to 4.5% from 2% under Basel II. On top of this minimum, Basel III has added a capital conservation buffer of 2.5% and established a connection between banks’ dividend policy and compliance with this minimum capital level. Accordingly, to avoid any interference by the supervisor in their dividend policy, banks must at all times hold a minimum level of top-quality capital of 7%. For the first time, too, Basel III has added a macroprudential component to capital levels. The countercyclical capital buffer could entail an additional capital requirement of up to 2.5%. Building up a capital buffer in good times, with the aim of depleting it in not so prosperous times, is a macroprudential mechanism that will help reduce the contraction of credit when there is a recession, and temper the growth of credit in upturns. However, calibrating the buffer is no easy task.

Conclusion Let me say in conclusion that the assessment of monetary policy is an important part of an independent central bank’s endeavour to be open and clear and of the endeavour to attain and maintain confidence in the inflation target. In Sweden, we publish a substantial amount of information that enables the general public to examine our analyses and to understand how monetary policy decisions are made. The developments in the economy in recent years have given rise to many important issues, not only for us decision-makers, but also for those who assess us. We are several central banks who have faced structural, unforeseen factors contributing to keeping down inflation, while monetary policy is expansionary, the economy is showing robust growth, and household borrowing and asset prices are rising rapidly. An inflation rate lower than the target level need not be interpreted in this situation as due to excessively tight monetary policy and as a failure for monetary policy. It is interesting to note that this has not been the conclusion in the most recent assessment of Norges Bank. Developments in recent years have raised issues which are extremely important in the discussion and which require improved analysis. If we were to aim at keeping inflation on target at any cost, without taking into account developments in the real economy, what would the consequences be of trying to stimulate demand further so that inflation comes closer to the target?
But the problem with prices falling is often said to be that demand will then collapse as households are postponing consumption while waiting for prices to fall so they can buy more cheaply.19 This reasoning is not necessarily wrong, but is really only a reformulation of the problem I mentioned above; that low inflation limits the scope for making monetary policy more expansionary. There is a risk that households will postpone their consumption – that is, that they will increase their saving – if the real interest rate becomes unjustifiably high. Here it is necessary to put price developments in relation to developments in wages and the return on saving. There is therefore scarcely reason to believe that anything dramatic will begin to happen just as the general rate of inflation becomes negative. One should also remember that substantial differences are hidden in the price trends for different product groups that lie behind the general rate of inflation. One example is developments in prices for technology-intensive goods such as TVs, computers and mobile  15  According to Drehmann et al. (2012), an average financial cycle, in which the credit cycle is a central element, is 16 years long. The length of an average business cycle is much shorter, perhaps five years. 16  Inflation expectations have fallen in recent years in the surveys conducted by the National Institute of Economic Research and Prospera. Short-term expectations are now just below one per cent, but long-term expectations are still close to the two per cent inflation target.

The real cost of a loan, that is, the interest cost adjusted for inflation, becomes higher if inflation is surprisingly low. Another way of describing this so-called debt deflation is that surprisingly low inflation means that the real value of debts rises. It then becomes more difficult for borrowers to pay off their debts, at least unless their real incomes also rise.8 One can expect that the problems will be particularly extensive if inflation is surprisingly low during an economic downturn that coincides with high private or public debt. This is because those who try to reduce their debt do so by reducing their expenditure, which means that demand in the economy declines.9 And this reinforces the economic downturn. We are not seeing such a scenario in Sweden right now. Although household debt is high, economic activity is beginning to pick up and household consumption has developed relatively well in recent years.10 The risk that many see with the high household indebtedness is rather that a future economic downturn would be reinforced by households rapidly reducing their consumption. A relevant question – without an obvious answer – is whether such concern should be countered with a tight monetary policy that dampens households’ propensity to increase their nominal debts or with an expansionary monetary policy that ensures inflation does not become surprisingly low. The idea behind the latter strategy is to limit growth in households’ real debts.11 The low inflation could thus worsen the situation for households with a high level of indebtedness.
In most jurisdictions, but crucially not in the euro area, unconventional monetary policies have led central banks to purchase significant amounts of Government debt: those purchases amount to 51% of the total debt issued since 2009 in the UK, 21% in the US and 7.6% in the euro area – where they were fully sterilized. Although this was not the primary purpose, this policy stance has contributed to giving markets an insurance, or even an assurance, against a potential dry-up in liquidity. In all countries where significant amounts of debt have been purchased by monetary authorities, long-term interest rates have been kept at very low levels, irrespective of their fiscal situation. By contrast, purchases of sovereign debt by the Eurosystem have remained extremely limited and will stay so. Our objectives are very circumscribed: avoid disruptions in the monetary policy transmission mechanism. Any lasting liquidity backstop has to come from the governments. This is why we have been asking for more flexibility in the EFSF and very much welcome decisions taken in this regard on July 21st. Whether amounts are big enough is a matter of opinion. It would be unrealistic to expect an increase in the EFSF itself but I am personally open to any scheme that would allow existing commitments to be leveraged to provide greater intervention capacity. At the moment, the kind of insurance that most monetary authorities provide may look cheap because inflation is projected to stay low in the foreseeable future. But this equilibrium could be unstable in a different inflation environment.

Now that this certainty is gone, debt sustainability may well rest on a more fragile and volatile basis. As we all know, debt sustainability depends on three variables: the primary surplus, the growth rate and the interest rate. The relationship between those three parameters and debt can be expressed through a simple equation, the famous “unpleasant arithmetic”. Assessing sustainability seems therefore relatively straightforward. Many economists and market analysts on sovereign European debt simply assume low growth and high interest rates forever in peripheral countries – which enables them to conclude categorically that debt is not sustainable. A (slightly) more sophisticated and developed version of that story takes account of the impossibility, for Euro economies, to depreciate their exchange rates, therefore locking them into a low competitiveness and no growth equilibrium. I see three major problems with those analyses. First, the competitiveness story does not hold. Take the UK, for instance. Its effective real exchange rate has depreciated by 23% over the last four years. And its exports have grown by a healthy 15%, in nominal terms, over the first six months of 2011. But Italy, Spain and Greece have done even better, with exports growing respectively by 16%, 19% and 37% during that same period, and, of course, no exchange rate adjustment. Equating competitiveness with exchange rate depreciation is therefore overly simplistic. This does not mean that efforts to improve competitiveness in many parts of the euro area should not be strengthened.
For example, payments processed through Faster Payments grew from 295 million with a total value of £ in 2009 to 1,247 million payments with a total value of £ in 2015. 13 These were developed by the Committee on Payments and Market Infrastructures (CPMI) and the International Organisation of Securities Commissions (IOSCO). 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Operational risk is the risk of disruption from systems and processes, from human errors and management failures and from external events and external actors. All types of financial market infrastructure firms face operational risks. Indeed, for many of these firms, it is the ‘number one’ risk they face. A serious operational incident affecting one of these global pipes is likely to have an impact on the system as a whole in several jurisdictions, rather than just upon the infrastructure firm itself. The PFMIs require financial market infrastructure to identify plausible sources of operational risk, and ways to mitigate their impact. 14  FMIs are also required to have credible business continuity and recovery plans,  with the aim of resuming operations within a maximum of two hours following the most disruptive events. However, as the infrastructure that supports the financial system grows in scale, complexity and inter-connectedness, the potential risks and costs of systemic operational risks increase as well. To successfully mitigate this requires a focus on both operational risk and on operational resilience; the ability to respond and recover, as well as prevent and protect.

Our Sandbox is unique as it is the first to include Islamic finance. Thus, industry players can be assured of the regulatory support by the Bank in expanding their frontiers of innovation. We would therefore expect to see more technological platforms to be introduced and infusion of technology to take place not only to disrupt the way we do things, but at the end of the day, to be able to significantly enhance values and experience for the consumers. The third and final key area relates to the measurement of the industry’s contribution to society and the wider economy. Islamic finance has more to offer beyond the confines of the conventional parameters of Sustainable, Responsible and Impact Investing (SRI); as well as the Environmental, Social and Governance (ESG) considerations. A natural alignment between Islamic finance and SRI already exist, given that the principles of fairness; equality; and ethics are embedded in Islamic finance which are associated with social well-being of the people. Given these common core values, there are certainly vast opportunities for Islamic finance to broaden its investor portfolio to access the global SRI funds that stands at more than USD3 trillion. In broadening the horizon of Islamic finance by tapping into socially-conscious investments, the industry can actively spearhead efforts to promote and reach out to investors whom are value driven. We envision that investments through Islamic finance products would meet the aspiration and needs of this group of investors.