samchain/econo-pairs-v1 huggingface dataset:
The break from the years prior to the financial crisis is clear. Growth is being supported by immigration and employment growth, and not by increased productivity. There are two factors that determine value added in a population. One is labour input and the other is labour productivity. I will look at some aspects of each of these factors. Chart 15: Employment ratio is high, but hours worked are low The employment ratio is high in Norway. Labour force participation is high and most jobseekers find work. Employment has increased rapidly since the mid-1990s. An expansionary monetary policy and additional government expenditure of oil money buoyed activity and employment through the financial crisis. Measured by hours worked, labour input has also risen, albeit not to the same extent. On average, the working day is shrinking. The employment ratio adjusted for working hours provides an expression of average labour input per hour worked among the active population. In this chart, hourly labour input is measured in relation to usual hours of work per year of 1 750 hours. In 2011, the average number of hours worked in Norway came to about 60 percent of usual hours of work per year. By this measure, the employment ratio was higher in Greece than in Norway up to the time when Greece was fully hit by the crisis. Total labour input is considerably higher in Sweden, Finland and the US than in Norway. We work less than the OECD average.

Productivity growth has stagnated in most OECD countries. Goods production has declined, while services production has increased, as in Norway. But this shift was based on borrowing rather than increased earnings in many countries. After the financial crisis, funding sources dried up and these countries were faced with a debt crisis. Fundamental structural problems with eroded competitiveness came into evidence. These countries must not only reduce their debt levels, but also engage in a painful process of adjustment and rationalisation. Only then can these economies find the path to renewed growth. The Norwegian economy has experienced virtually 20 consecutive years of growth. We have invested in a hugely profitable oil industry and found a balance between spending petroleum revenues domestically and saving petroleum revenues in the form of foreign investment. On the other hand, it seems that both the public and private sectors are having difficulties finding profitable mainland investment projects. Taking a longer view, this is a source of concern. Should petroleum revenues shrink, we need more pillars to stand on. Otherwise, we would have to embark on the path of adjustment towards renewed growth, the path that other countries are already going down. Conclusion Let me return to Johan Borgen. For Wilfred Sagen and his peers, the festive times did not last long. The war came to end and freight earnings declined. The boom period was followed by hard times. Banking crises, parity policy and protectionism led to prolonged and deep recessions in the world economy. The environment is entirely different today.
This may in turn imply that similar imbalances reappear in the future: the experience of exchange rate devaluations in the 1990s suggests that adjusting only through relative costs, without lifting productivity,  12  The most widely used concepts in applied work are those of β-convergence (faster productivity growth, exhibited by countries with lower productivity levels) and σ-convergence (decreasing cross-country dispersion in productivity levels). 13  Demyanyk, Y. et al (2008), “Risk sharing and portfolio allocation in EMU”, DG ECFIN Economic Papers 334, July 2008. 14  Kalemli-Ozcan, S. et al (2013), “Debt crises and risk sharing: the role of markets versus sovereigns”, CEPR Discussion Paper no. 9541, July 2013. 15  Including capital transfers (e.g. EU funds). BIS central bankers’ speeches  5  may not be sustainable. Hence, I see reforms that boost productivity as a cornerstone of a sustainable convergence process – but which reforms? The importance of reallocation Raising TFP is chiefly a function of innovation, technology adoption and reallocation. Innovation creates new technologies that improve the efficiency of the production process, adoption helps those technologies to become more widespread, and reallocation helps capital and labour concentrate in firms where they can be employed most efficiently. Public policy can and should contribute to innovation and technological spillovers by raising the quality of human capital and helping incubate research and development, as well creating a business environment that favours entrepreneurship. However, the benefits in terms of productivity tend to be felt over a longer time horizon.

It is almost as high as median income in the EU, and not that far from the level in Sweden. Nor does the EU definition of low income capture the considerable rise in median income in Norway over the past 15 years. In relation to the 1994 low income threshold, measured in real terms, the low income group has decreased by more than half, falling particularly sharply in the 1990s when unemployment also exhibited a sharp decline. In addition, turnover is high in the low income group. Around a fourth of the group comprises those aged 16-24, while one fifth are aged 64 and over. Many of those with low incomes are students or old age pensioners. Thus, low income only becomes a social problem when people remain economically inactive for much of their lives. Both labour market developments and short-term financial incentives can lead to this kind of social exclusion. Social security schemes can also over time become poverty traps, locking in many people who would have been unemployed for a period in other countries. A cause for particular concern is the rising number of young people that receive benefits on a permanent basis. I will now turn from today’s income distribution across groups to the distribution across generations in Norway. The Norwegian national insurance scheme is a pay-as-you-go system. This means that a given year’s pension payments from the scheme are covered by government budget revenues that year.
The second factor is a result of the process whereby expectations are formed and in the new Keynesian model it is represented by the term indicating inflation expectations. If there isn’t full information on the nature of the shocks and the structure of the economy or the central bank’s determination to ensure price stability, then businessmen have a long learning curve to embark on. This increases the danger that a shock that temporarily raises the inflation level, such as a major hike in oil prices, may end up gaining a foothold in inflation expectations rather than rapidly disappearing. That is why an effective monetary policy depends to a large extent on pegging those expectations to the goal of price stability. 2.3  Preferences  The third element of difference between both sides of the Atlantic can lie in the approach adopted by the central banks, which to some extent reflect also their mandate, in accordance with the institutional setup prevailing in each individual country. In the euro area, the European Central Bank’s mandate is enshrined in the Maastricht Treaty, which clearly emphasises price stability maintenance as being monetary policy’s primary goal. To support the implementation of that principle, the ECB has adopted a quantitative definition of price stability – namely, an inflation rate below but close to 2%. This facilitates learning by the 10 private sector and diminishes market uncertainty, thus promoting macroeconomic stability. This stability means that there are fewer variations in the interest rate.

Likewise, in September and October 2008, at the peak of the world financial crisis, the spreads of the peso and dollar rates increased significantly. In scenarios of financial stress, it is imperative to align market rates with the MPR, because the latter may cease to act as a benchmark for the financial system. Therefore, the first actions we took were to provide the necessary liquidity and ensure that the financial system could continue operating as usual (figure 6). 2  BIS Review 145/2009  The timing of the interest rate cut can be subject to debate. It is possible that, with the information we have today, we could have done it sooner. But I must insist that monetary policy decisions are made with the information available at each moment in time, so it is useful to refresh some facts. In December 2008, we entered the monetary policy meeting with an annual inflation rate of 8.9%. The market expected the MPR to be at 6.25% and annual inflation to be at 3.9% by December 2009. Thus, despite the downward bias of monetary policy, the MPR was not reduced until January, and began a process rate cuts with a speed and magnitude unexpected by the market (table 1). This is how, after accumulating signals that the inflation phenomenon had ended and was strongly reversing, we began reducing the MPR, and we did it with vigor, taking it to the level we believe is the minimum it can take without jeopardizing the normal functioning of the money market.
We achieve this by setting 𝛿 = 0.1, 𝛽0 = 0.5, 𝛽1 = −0.2, and 𝜃0 = 10, that is to say, a crisis reduces the level of GDP by 10% relative to baseline. If instead we set 𝜃1 = −0.1, such that each percentage point increase in capital reduced the GDP hit in a crisis by 0.1%, the optimal capital ratio increases to over 20%. 15 See Cunliffe (2017) and Bank of England (2017) for discussion of resolution. 16  This estimate is based on the difference in the estimated cost of crises across their sample depending on whether they occurred under more or less credible resolution regimes. 17 Admati and Hellwig (2013) have forcefully questioned the basis for assuming such costs, given that standard finance theory would predict that the cost of debt and equity funding for a bank will decline in response to an increase in its capital position. 13  All speeches are available online at www.bankofengland.co.uk/speeches  13  A recent paper from the BIS (Gambacorta and Shin (2016)) reaches a similar conclusion. It finds that banks with higher unweighted capital ratios have tended to have higher loan growth, with each one percentage point increase being associated with higher subsequent lending growth of 0.6 percentage points per year. This evidence is consistent with the macroeconomic costs of higher bank capital being lower than assumed in the Basel LEI study.

We should have an optimistic view of the future and at the same time make sure our stance is realistic and consistent. Time is ripe for Albania to start producing more goods and services than before. Despite the admirable progress in this context, the gap is still wide. Agriculture and industry remain two important branches of the economy operating far from their potential. Additionally, other sectors that have revitalized during the transition years require more orientation and tuning. These measures will enable better diversification of the Albanian economy, augmenting its stability with the passing of time. Other challenges I believe relate to the country’s external position, implying the reduction of current account deficit and the provision of alternative resources of foreign currency inflows. Therefore, I think that the role of the state needs to be more pronounced, not only in terms of completing the legal and regulatory basis but also of concluding a number of important structural reforms, in particular those related to the land, ownership titles, pensions, to the support of the small and medium-size business, to the further improvement of business environment and the ongoing upgrade of national infrastructure. The further strengthening of safety nets, in the context of a stable fiscal and financial position, is an obligation whose accomplishment would reduce both the real and perceived risk of the Albanian economy, hence creating incentives for the growth of domestic and foreign investments.
2  Broadbent (2012). 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Divergences in expectations: why demand and the exchange rate can move independently  Let me now turn to the point about expectations. This is of particular relevance for the current inter-regnum, the period following the referendum but before Brexit itself. At least until the formal departure date what 3  people expect of it is the main way – arguably the only way – in which it can affect the economy . This is an obvious point. But I think we should pay it some heed, not least because it’s unclear how these expectations will evolve. If it’s not a unique event Brexit is certainly an exceptional one. People haven’t much history to go on. It’s therefore reasonable to imagine that predictions about its consequences might Chart 4: Share prices of UK-focused companies have underperformed  4  vary over time: we will all of us learn more about its effects as Brexit unfolds. It’s also understandable if these expectations differ across the population. It’s clear that financial markets have relatively pessimistic expectations. Since the referendum share prices of UK-focused companies have significantly under-performed both their international peers and those of companies quoted in the UK but whose earnings come from overseas (Chart 4). Sterling’s exchange rate has also fallen very sharply. As Sources: Thomson Reuters Datastream and Bank calculations.

xxvii  That is perhaps why studies of expansionary monetary actions generally find they reduce, not increase, inequality while raising demand and supporting jobs. xxviii  And there appears to be little evidence that  stimulative monetary policy makes groups worse off. Do these lessons apply to the most recent UK recession and recovery? Macroeconomic Outcomes The 2008 financial crisis threatened depression and mass unemployment, with the least well-off most exposed. Fiscal policy quickly came under severe strain as tax revenues plunged, the costs of social benefits rose sharply, and the huge bills for too-big-to-fail banks came due. Since then sustained austerity has reduced the fiscal deficit from around 10% of GDP in 2010 to around 3 ½ % today. While necessary, this has, on average, subtracted around 1 percentage from demand each year. Over that time, structural policies have boosted participation in the labour market but have been unable to return productivity growth to anything resembling its historic average. For seven years, in the face of severe headwinds to growth, monetary policy has been the only game in town. Its task has been complicated by those historically low equilibrium interest rates. These likely turned negative in the aftermath of the crisis, meaning that monetary policy has had to run very fast just to stand still. Given constraints on how low nominal interest rates could go, the Bank of England’s MPC had to buy gilts – so-called Quantitative Easing (QE). What if the MPC had not acted?
Since these periods can be characterized by the monetization of public debts by sources of central banks or central banks having objectives other than and sometimes even contradicting price stability, economic agents tend to have doubts about the credibility of central bank policies. Not to mention that this constitutes a limit to the effectiveness of monetary policies. The other one is known as “inflationary psychology” or “inflation scare”. To be more precise, because of high and volatile inflationary periods, economic agents in emerging economies are more inclined to exaggerate adverse effects than in any other economy that has price stability. Thus, a seasonal rise in inflation may immediately lead to deterioration in inflation expectations and higher prices with little transitional impact on the level of economic activity. At this point, given the importance of expectations management, a key aspect of the policy framework is transparency and communication. Here, it is impossible not to agree with Paul Volcker, who said; “I have one lesson indelible in my brain: don’t let inflation get ingrained. Once that happens, there’s too 7 much agony in stopping the momentum.” Referring to the Turkish case, I can say that the thirty-year experience of high and chronic inflation has made us face the challenge of convincing both the public and the financial markets that we are committed to bringing inflation down and maintaining price stability.

This growth was mainly driven by expansions in the transport, storage and communications;  BIS central bankers’ speeches  1  construction; community, social and personal services; financial institutions and insurance as well as manufacturing sectors. In line with the expansion in real GDP, per capita GDP has increased from 332 US Dollars in 2000, to 655 US Dollars in 2005 and 1,784 US Dollars in 2013. We are, however, alive to the fact that more growth is required in order to have a lasting dent on high poverty levels and even more important, there is need to do more to make growth more inclusive and equitably distributed among the citizens of our country. Distinguished Participants, to ensure sustainable economic growth, the Government has been pursuing appropriate macro-economic policies. To this effect, inflation has declined from the double digits of the early 2000s to single digit levels as recorded in recent years. Annual inflation slowed down to 7.1% in December 2013 from 7.3 in December 2012, although it was 1.1 percentage points above the end-year target of 6%. This outturn reflected higher non-food inflation which was moderated by lower food inflation. Higher non-food inflation was largely due to higher fuel prices, coupled with pass-through effects of the depreciation of the Kwacha against the US dollar. During the first four months of 2014 inflation rose to 7.3%, 7.6%, 7.7%, and 7.8% in January, February, March, and April, respectively.
Notes: the line for the UK shows the average of the BCC, CBI, CIPS and Bank of England Agents’ survey measures of investment intentions. The line for the US shows the Business Roundtable CEO Survey measure. Chart 12: UK financial system much more resilient Per cent 20  Per cent 16  18  Basel II core Tier 1 weighted average (left-hand scale)  14  16  Basel III common equity Tier 1 weighted average (right-hand scale)  12  Basel III definition of capital  10  CET1 ratio adjusted for 2016 stress test losses (right hand scale)  8  14 12 10  6  8  4  6  2  4 2  0 01  02  03  04  05  06  07  08  09  10  11  12  13  14  15  16  17  Sources: PRA regulatory returns, published accounts and Bank calculations. See June 2017 Financial Stability Report for details of series. Notes: The chart shows major UK banks’ capital ratios as a percentage of their risk-weighted assets. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  Chart 13: Corporate bond spreads below historic averages Basis points 3000 Dashed lines: averages since 2000 Sterling  2500  2000 Euro 1500  US dollar  1000  500  0  Sources: Bank of America Merrill Lynch Global Research and Bank calculations. Notes: Option-adjusted spreads.

With detailed contingency planning for the financial stability impacts of Brexit, UK companies can be confident of continued access to finance in an uncertain world. Reforms mean the UK financial system is working well. Net lending to private companies is been growing following six years of contraction. Corporate bond spreads are well below their long-run averages (Chart 13). And credit conditions among SMEs have been steadily improving. If the opportunities present themselves, UK corporates could readily draw on this finance as their balance sheets are in good health following a decade of de-levering to ratios amongst the lowest in advanced economies. 12  Turning now to monetary policy, the Bank operates within an established framework, anchored in the inflation target (Chart 14). The MPC set out in advance of the referendum how it would apply that framework, emphasising that the effects of the process of leaving the EU on inflation would depend on its impact on demand, supply and the exchange rate. The Committee has repeatedly stressed that, as a result, the implications for monetary policy would not be automatic. The MPC has also clearly set out its reaction function consistent with its remit. Under the exceptional circumstances Brexit entails (with an inflation overshoot driven entirely by an exchange rate depreciation caused a large fundamental shock), the Committee is required by its remit to balance a period of abovetarget inflation with a period of weaker growth.
The difference today is that the surplus this time has contributed to excessive borrowing in many western countries rather than to a debt crisis in Latin America. But the theme remains largely the same: Plenty of  2  BIS Review 149/2010  money to lend, excessive optimism among lenders and borrowers and inadequate controls and supervision – this is usually a sure recipe for a crisis. Global challenges So much for the causes of the financial crisis. What about its consequences? One obvious consequence has been that many countries have needed to use fiscal policy to support the bank sector and to maintain demand in the economy. As tax revenue has fallen as demand has weakened so much, this has led to large budget deficits and rapidly growing government debt. One might say that the debt problem has been transferred from the private sector to the public sector. So to return to my earlier discussion of the debt crisis in the early 1980s, one can perhaps say that the result of the international imbalances was once again a form of public debt crisis. All in all, this means that the global economy is now facing at least three major challenges: Firstly, the regulations for the financial system need to be tightened, and supervision needs to be more effective. The aim is, of course, to increase stability and resilience in the financial system and reduce the risk of future crises.

However, as a part of this inquiry the Riksbank is organising a workshop tomorrow with the title “Housing markets, monetary policy and financial stability”, where a number of invited international academics will present essays they have written on this topic. We hope that this inquiry will improve our knowledge of a field that is important both to monetary policy and the economy as a whole. I hope that this talk has given you, and in particular the new members of the committee, an insight into how I view the situation in Sweden and abroad. I shall now do my best to provide good answers to any questions you may have. 8  BIS Review 149/2010  BIS Review 149/2010  9  10  BIS Review 149/2010  BIS Review 149/2010  11