samchain/econo-pairs-v1 huggingface dataset:
As a final message, I would like to underline that monetary and institutional stability and the effort, not only of the Central Bank, but also of other regulatory agencies, including the Comissão de Valores Mobiliários (the Brazilian Securities and Exchange Commission), the Superintendence of Private Insurance (Susep) and the Complementary Pension Secretariat, and initiatives from market institutions, such as the Novo Mercado implemented by the São Paulo Stock Exchange, in addition to our growing corporate maturity in an increasingly globalized world, enabled us to make significant advances in recent years towards best governance practices, gradually converging to the standards of more advanced economies. There is no doubt that we shall continue to make more and permanent advances, and this is our goal. 2  BIS Review 117/2008

I very much doubt it given the usual time lags observed in the diffusion of past technologies and the differences in productivity levels between firms. The second type of lag, space-lags, refers to the uneven diffusion of technology across firms. Frontier firms usually enjoy stronger rates of productivity growth than imitators in the same sector. In France, the productivity growth of frontier firms has remained steady – or even increased – throughout the slowdown [slide 7]. This may reflect winner-takes-all phenomena. For example, in the digital economy, due to network externalities, one firm with a marginal comparative advantage can seize the whole market and benefit from the low marginal cost of production of additional units of its product. However, these phenomena may be specific to ICT-producing sectors. Productivity growth in frontier firms mostly reflects the actual pace of technological advance and supports techno-optimists views. I’ve shared with you a few thoughts on these three promising hypotheses. To conclude, let me share with you what I see as priorities in order to exit the low growth trap and prevent the risk of secular stagnation. We must obviously accelerate domestic reforms in order to foster innovation and an entrepreneurial spirit. But at the European level, we need to tackle the persistent “investment crunch” which followed the financial crisis. Thus, we first need a “Financing and Investment Union” in Europe to steer abundant savings into investment and provide adequate financing for innovation.
The nature of the run-up to the crisis has been well-documented, so let me focus here on the latter two phases: the crisis and convalescence. During the crisis, weakness in the housing market contributed to financial strains as many families found that their mortgages were “underwater,” that is, their homes were now worth less than their mortgage balances. As a result, they had no financial buffer they could tap if their finances came under stress. And, as the economy weakened further, many households faced sharply reduced incomes as family members lost their jobs or had their work hours cut. So, more families found it difficult to pay their credit card bills and other debt obligations on time. As a consequence of these strains, households began the painful process of deleveraging. They started reducing the amount of debt they owed, relative to their income. During the runup to the recession, households were saving only about 2 percent of their income; now they are saving around 6 percent of their incomes. This increase in saving was mostly used to pay down their debts, but it also included adding to their savings accounts and borrowing less. Of course some of the reduction in debt reflects loan charge-offs of bad debts. But work done here with the Consumer Credit Panel shows that some consumers also became more frugal, rebuilding their net wealth by paying down their debts.

According to latest data from INSTAT, the Albanian economy posted 0.5% growth in the second quarter, apparently slower compared with growth rates in the first quarter. By sector, economic growth, in this period, was sustained mainly by the positive performance of agriculture and individual branches of industry and services sectors. Valueadded in agriculture was up 3.4%, providing significant contribution by this sector to the overall economic growth during the second quarter. On the other hand, the services sector’s annual value-added was up by 1.8%, slowing down significantly from previous quarters’ rates. Transport and financial intermediation were the main drivers of this sector, whereas most of other branches of the services sector contracted, year on year. Likewise, the industry sector shrank by 8.5% in the second quarter, after its positive performance in the last six quarters. Industry sector deceleration during this quarter was largely influenced by slashed output in “Energy, water and gas”, whereas extraction and processing industry continued their upward value-added. After its surge in the first quarter of 2011, the construction sector contracted again in the second quarter, posting annualised downgrade of 1.7%. As regards aggregate demand, during the first half of the year, economic growth was supported mainly by the public sector and foreign demand contributions, whereas internal demand was lacklustre. Available data suggest that private consumption and investments were sluggish during the first half of the year, thus conditioning the below-potential growth of the economy during this period. Private consumption continues to reflect consumers’ reluctance to spend and their inclination to save.
In terms of its composition, moreover, the draft Budget has most of the adjustment falling on public spending. And this, on past experience, raises the effectiveness of the consolidation strategy. Yet the presence of risks threatening the attainment of these targets should not be understated. The Budget is based on a macroeconomic scenario of significant recovery which, if not confirmed, might lead to a revenue path worse than projected. As I said, if this were the case, offsetting measures should immediately be applied. But perhaps the biggest risk to general government meeting its targets stems from the potential deviations that may arise at the regional and local government level. As known and reiterated on many occasions, the high decentralisation of public spending in Spain means that the collaboration of the regional and local governments is essential for achieving budgetary stability. At the end of this year it will be possible to make a full assessment of the consolidation drive made by the regional budgets, but my impression is that, as matters stand today, the measures announced by most regional and local governments far from respond to the reduction in public spending needed. I therefore believe formulas must be sought to strengthen regional and local government commitment to budgetary stability and to encourage compliance. In this respect, we should not rule out a revision and strengthening of the national budgetary framework, in particular in the case of regional and local governments, a framework that resides essentially on the Budgetary Stability Law.

One reason for this, I believe, is that economic policy has not in practice been aimed at putting people in work. One example is that the compensation levels in several transfer payment systems were increased during the late 1990s. Now other changes are being discussed which would directly and tangibly have the same effect, for instance, a reduction in working hours. Another problem in this context is that the Swedish labour market has not been able to make adequate use of the many people in Sweden who were born abroad. The employment frequency among these people has been much lower than the employment frequency among people born in Sweden. This applies in particular to those who have arrived here quite recently. They include many university-educated or otherwise highly-qualified people who are completely without work or have jobs below their level of competence. In addition, the problem is exacerbated by the fact that the population's age structure in the near future will become less advantageous from a labour force perspective, with increasing numbers of exits from the labour force. An ever declining group of workers will have to support an ever increasing number of people, unless measures are taken. It is easy to see the significance for economic growth of measures to increase the labour supply. For example, the number of hours worked could increase by an average of 0.4 percentage points more per year if it were possible to halve the number of people on sick leave by 2008.
The problem with both is that other policies, such as fiscal policy, will then have to take care of domestic economic stabilisation. But will they? Third, they can use FX intervention to reduce the effect of volatile capital flows on the exchange rate. Fourth, they can increase resilience and the ability to live with exchange rate fluctuations (reduce the fear of floating) by strengthening financial regulation and supervision or employing macroprudential tools. Fifth, if everything else fails, they can introduce tools aimed directly at the financial integration part in order to regain greater monetary independence and shift the effect of monetary policy more to the interest rate channel and towards the non-traded goods sector. These so-called capital flow management measures are probably most needed when countries are faced with large capital inflows at the same time as domestic conditions warrant significantly higher interest rates than among core rate setters. In Iceland, we have used many of these tools in recent years. We have used FX intervention to reduce short-term exchange rate fluctuations and, in recent years, to lean against strong appreciation pressures. We have introduced a liquidity coverage ratio and a net stable funding ratio in foreign currencies. In 2016 we were faced with strong capital inflows that flattened the yield curve as the policy rate was being increased and more was signalled. We then introduced a special 2  Rey (2013) and Obstfeld (2015) analyse this issue and provide somewhat different views on whether it is a dilemma or a trilemma.

If we have a world made up of one very large country and several very small countries, with full cross-border financial integration (in the 1  For a more expanded version of what follows, see my published work, in particular Gudmundsson (2008) and Gudmundsson (2016). 2  economic sense of these terms rather than the legal one), and assume that relative risk premia are constant, then long-term interest rates in the small countries will be pegged to long-term rates in the large one. This, of course, is an “unrealistic” theoretical simplification. But it gives us a reference point to start to think about these issues, and it indicates the direction we might be heading in as global financial integration progresses. In this type of world, the small countries could still have independent monetary policy of a sort, provided that they have a flexible exchange rate regime. They could pick their own inflation targets and set their own short-term rates that would affect economic activity in the short run and inflation in the long run. In this case, monetary policy works mostly through the exchange rate channel. If exchange rates are “well behaved” and the financial sector is sufficiently regulated and supervised, then a floating exchange rate and “keeping your own house in order” is sufficient for independent monetary policy and financial stability. The problem is, however, that exchange rates are sometimes far from being smooth reflections of underlying fundamentals.
Before recommending the establishment of the Federal Reserve System - a plan which it described as “essentially an American system, scientific in its methods, and democratic in its control” - the Commission produced 22 volumes on the monetary and banking systems elsewhere, especially in Europe. Copies of these volumes sit proudly in the Governor’s anteroom in the Bank of England. The authors noted that “the important place which the Bank of England holds in the financial world is due to the wisdom of the men who have controlled its operations and not to any legislative enactments”. But they did not see the Bank of England as a model, and they recommended the creation of an institution framed by legislation. It would be ninety years before Britain finally learnt the lessons of the National Monetary Commission and passed legislation to buttress whatever wisdom the Bank could command. Institutions embody accumulated wisdom and experience, and they should not be meddled with lightly. From time to time, however, it is necessary to rethink the role of our institutions. The changes made to the Bank of England in recent years, including an inflation target and a high degree of transparency, have, I believe, improved Britain’s monetary arrangements. Whether either the men and women or the current institutional arrangements of the Bank of England will have any more success in influencing monetary arrangements in the United States today than in 1908 is a matter I leave to you.

Differences among cohorts may lead to variations over time in the optimal shape of institutions, rather as Jefferson advocated. For example, Robert Shiller (1996) reports that 90% of those born before 1940 in Germany agreed with the statement that ‘The control of inflation is one of the most important missions of German economic policy’, compared with 51% of those born from 1950 onwards. Memories of hyperinflation can be vivid: Niall Ferguson cites the diary of one Frankfurt resident in 1923: “it was more than disorder that smashed over people, it was something like daily explosions… the smallest, the most private, the most personal events always had one and the same cause; the raging plunge of money” (p154). So it is not surprising that the generation of Germans which created the Bundesbank saw it as a crucial component of their new constitution. Countries, or indeed cohorts, which have not experienced hyper-inflation may be more willing to adopt monetary arrangements that are less entrenched in constitutional form than the postwar generation in Germany. The second aspect of the technology of collective decisions that creates a role for institutions is our ignorance of all possible future states of the world. That means that even if we were able to commit to a policy rule, we would choose not to do so. The exercise of some discretion is desirable in order that we may learn. The most cogent argument against the adoption of a fixed monetary policy rule is that no rule is likely to remain optimal for long.
When money available to investors is close to free and is widely available, and there is a presumption that the central bank will keep it that way indefinitely, discount rates applied to assessing the value of future cash flows shift downward, making for lower hurdle rates for valuations. A bull market for stocks and other claims on tradable companies ensues; the financial world looks rather comely. Market operators donning beer goggles and even some sober economists consider analysts like Boockvar party poopers. But I have found myself making arguments similar to his and to those of other skeptics at recent FOMC meetings, pointing to some developments that signal we have made for an intoxicating brew as we have continued pouring liquidity down the economy’s throat. Among them: •  Share buybacks financed by debt issuance that after tax treatment and inflation incur minimal, and in some cases negative, cost; this has a most pleasant effect on earnings per share apart from top-line revenue growth. •  Dividend payouts financed by cheap debt that bolster share prices. •  The “bull/bear spread” for equities now being higher than in October 2007. •  Stock market metrics such as price-to-sales ratios and market capitalization as a percentage of gross domestic product at eye-popping levels not seen since the dot-com boom of the late 1990s.

For the same reason, this phenomenon can act to mask or offset the effects of high levels of present and expected future government borrowing on interest rates, perhaps contributing to a false sense of reassurance that we can continue to run large structural deficits without risk of crowding out private investment and damaging future growth. BIS Review 18/2006  3  What might this mean for the conduct of monetary policy? To the extent that these forces act to put downward pressure on interest rates and upward pressure on other asset prices, they would contribute to more expansionary financial conditions than would otherwise be the case. And, if all else were equal, which of course is unlikely ever to be the case, monetary policy in the affected countries would have to adjust in response; policy would have to act to offset these effects in order to achieve the same impact on the future path of demand and inflation. To do otherwise would run the risk that monetary policy would be too accommodative, pulling resources from the future in a way that would alter the trajectory for the growth of the capital stock, perhaps amplifying the imbalances, and compromising the price stability. Finally, these aspects of global monetary arrangements and financial conditions have important implications for how we communicate about monetary policy. They strengthen the case for why central banks should be clear about their objectives and credible in their commitment to price stability.
The return to  BIS Review 137/1999  4  that the trend rate of GDP growth has to move up from around 2% to an annual rate of 5% over a considerable period. Thus, we are talking of a marked upward shift in the growth trend that has not yet occurred in Sweden. Neither has such high growth been mentioned in the United States, except perhaps for a single year. The discussion there does, however, concern the possibility that the trend or potential rate of growth has risen. That would then point to some increase in the growth of corporate earnings in the United States. Why are asset prices relevant for central banks? If asset prices and the growth of credit in an economy are based on unrealistic expectations of future prospects, the result is liable to be a financial bubble. Under normal circumstances, rising asset prices add to the value of collateral and thereby strengthen the borrowing propensity of investors and the lending propensity of banks. An upward trend in asset prices is therefore often accompanied by an expansion of credit. In Sweden, for example, in the five-year period up to the early 1990s, real asset prices had risen more than 70% and private sector debt relative to GDP had grown from 100% to 150% (Fig. 5). Bubbles burst sooner or later, with consequences for the financial system and the economy in general that may be grave. That is one reason for central banks to take an interest in stock market trends.

In the United States the real earnings trend since 1940 has been virtually constant between 2% and 3%, while - as I just mentioned - the real return on shares shows a trend break after 1982 (Fig. 3).2 Are present share prices fundamentally justifiable? I shall now use a simple model to examine whether the present level of share prices can be justified in fundamental terms.3 Simplifying somewhat, this model equates the value of a share with the present value of the future income the share is expected to generate. A valuation in P/E terms accordingly rests on the assumptions that are made about these future incomes - the future growth of the company’s earnings - and the factor by which these incomes are discounted - the stock market’s expected return. We can insert alternative values for these assumptions to find the combinations that might justify different P/E ratios (Fig. 4). It will be seen that a P/E ratio of 14 can be warranted if the expected real return is 6% and the real growth of earnings averages 2.5%. These figures are all approximately in line with the historical trends.
That is why we dropped 6 zeros from the currency during the implicit inflation targeting period. Meanwhile, economic agents adjusted to floating exchange regime and the short-term interest rates were set as the only policy instrument. And finally we established the Communication Department, which is a must for IT implementations. Having fulfilled the necessary groundwork, the Central Bank adopted fullfledged IT in 2006. At the beginning of my speech I said that the divorce between paper money and the gold was the reason for some countries setting up central banks anew and broadening the mandates of the existing ones. We must then ask why people are willing to hold and use paper money. This is a very important question, and the answer is they expect the future value of the money to remain stable because the future price level will remain stable. This is a matter of great trust. But to whom do the people trust? They trust to the body, which is responsible for the stable prices: the central banks. Therefore the bottom line of the inflation-targeting regime is the management of the expectations. If expectations are anchored to the target, wage earners and price setters will behave in such a way that, at the end of the period, the target will be reached. Then the question is, how can we anchor expectations? The answer is: by building credibility through delivering what is promised. Once this is achieved, the volatility in interest rates, inflation and output would be lower. How do we build credibility?

In order to safeguard this informal, implicit independence, the CBT was established as, and still is, a joint stock company, in which the state and  BIS Review 57/2007  1  other local entities hold shares. This structure was by no means a coincidence, but of deliberate design aiming at minimizing government intervention. However, in today’s world, the relationship between ownership structure and central bank independence has become less significant. Nowadays, the most independent central banks are wholly state-owned and the central bank independence involves much more than just ownership. The early years of the establishment were the years in which autonomous functioning of the CBT was at the forefront. The central bank operations were respected and at times demand for short-term credit by the governments was then resisted. The outcome was low inflation. The basic aim of the Bank was to support the economic development of the country. To this end, the Bank’s main operational tools were to set rediscount rates, regulate money markets, execute the Treasury operations and take, jointly with the Government, all measures to protect the value of the Turkish currency. During and after the Second World War, central banking underwent drastic changes in the world in line with the gradual global economic and political transformation. The scope of the central bank’s mandate to manage and control the circulation of currency was extended. Its responsibility now ranged from issuing banknotes, functioning as a lender of last resort, achieving and maintaining low inflation to being the guardian of financial stability.