samchain/econo-pairs-v1 huggingface dataset:
The magnitude of the external tax: the energy and terms of trade shocks I.1 What happened? Page 2 of 14 Let me begin by noting that the first peaks on gas and electricity prices took place in the summer of 2021 in the context of the global post-pandemic recovery, when European countries had to build up their gas stocks for the winter and when demand for natural gas in Asia and the United States strongly increased. In this context the price of metals for example almost doubled from 2020 to mid-2021.Tensions in the oil market also emerged during the second half of 2021. Then, the Russian war in Ukraine has caused gas prices to soar. Electricity prices have also reached record levels: as you know, the price of electricity on the wholesale market is closely correlated to the price of gas paid by the marginal electricity producer. As regards non-energy industrial goods, the first blow to European import prices was caused by disruptions in global production chains following the post-Covid recovery. The next blow was the gradual spread of higher raw material prices to all manufactured goods traveling to Europe. These now widespread price increases triggered massive wealth transfers between importing and exporting countries.

This latter factor causes the current “premium” observed on electricity prices in France that are expected in the future markets for next winter. The bottom line is that it is not really possible to disentangle domestic and external factors in the rise in electricity prices, and thus to compute the additional “external tax” due to electricity. II. The ex-ante and ex-post distribution of the external tax Let me now turn to the second key issue: the question of the distribution of the external tax, or in other terms the burden sharing of the shock. I will illustrate this issue in the case of France for the energy bill only, for which more data is available at a granular level. Analysing this question involves three logical steps. First, how the increase in the energy bill is distributed “ex-ante” (as economists say) among households, firms and the general government, based on their respective volumes of energy  Page 9 of 14 consumption in the year before the price shock. In a second step, we need to take into account the fiscal measures put in place in 2021 and 2022 by the government in order to limit the energy bill of households and businesses – since they modify the distribution of the external tax. The third step should involve taking into account all the macroeconomic adjustments, in particular the pass-through of cost increases by firms in their sales’ prices and the response of wages to prices.
Another possibility is a shortage of high-quality safe assets,10 with countries like China accumulating reserves particularly in the form of US Treasuries. That in turn will also have increased the demand for substitutes, including the government debt of other advanced economies. But recent events in the euro area have highlighted the fact that the debt of  8  For instance, if an employer is putting aside an additional 15% of the wage bill to cover accumulating pension liabilities and the price of buying a given stream of future income rises by 20%, then he would now need to put aside an additional 3% of the wage bill to meet those obligations. 9  See Ben Bernanke (2005), “The Global Saving Glut and the US Current Account Deficit”, Sandridge Lecture, Virginia Association of Economics, Richmond, Virginia, 10 March. 10  See Ricardo Caballero, Emmanuel Farhi and Pierre-Olivier Gourinchas (2008), “An Equilibrium Model of Global Imbalances and Low Interest Rates”, American Economic Review, pp.358–393. BIS central bankers’ speeches  5  some sovereigns is not as safe as market participants thought. That has led to increased demand for the debt of those sovereigns that are still regarded as safe, including that of the United Kingdom. How long such a “safe-haven discount” persists depends not only on what happens in this country but also what happens abroad: the demand for one country’s bonds as a safe haven depends in part on how risky those of other countries are thought to be.

Mr Trichet gives an address on the risks and challenges of the international financial scene Text of the Third Hong Kong Monetary Authority Distinguished Lecture delivered by Mr Jean-Claude Trichet, Governor of the Banque de France, the central bank of France, in Hong Kong on 8 July 1999. It is a great pleasure to be here in Hong Kong and I am greatly honoured to have been invited to deliver the Third Hong Kong Monetary Authority Distinguished Lecture. So I would like to thank you for giving me the opportunity to express my views on the challenges and opportunities of the international financial scene. The international financial scene has been faced with two major changes over the last quarters: í  the recurrence of financial crises, originating generally in emerging or transition economies, which has emphasised the need to reform the architecture of the international financial system;  í  the introduction of a new currency, the euro, which should contribute to a balanced international monetary system. FINANCIAL CRISES AND THE REFORM OF THE ARCHITECTURE OF THE INTERNATIONAL FINANCIAL SYSTEM Two major explanations of the recent financial crises have been put forward: í  one which can be called the “fundamentalist” view argues that Asia’s healthy macroeconomic indicators – low inflation, fiscal balance, low government debt, high rates of savings and investment – offered a misleading picture. This view points out that many Asian governments provided implicit guarantees to the banking sector, which often engaged in borrowing abroad and in reckless lending to unqualified borrowers.
Would it come as a surprise to anyone in this room that some of the Swiss cantonal banks may also have “issues” with respect to U.S. tax compliance? Switzerland, the home country to the two big Swiss banks and the jurisdiction that charters them, does not have a law that criminalizes tax evasion, meaning the willful failure to report income and to pay the tax due on that income. This may be one of the reasons why Switzerland has earned a reputation as a tax haven, although that reputation may be changing as Switzerland faces external pressure from the international community. So, is it surprising that personnel from Switzerland, working for an organization that for many years had a business strategy of taking funds from high net worth customers without many questions about taxation at the source, did not turn square corners when visiting New York? Does it shock you that they would meet with U.S. customers and discuss their accounts, even though that was prohibited by the rules imposed by compliance? Once again, when the rules are in conflict with an organizational value system, watch out! People will find a way around them, either by closing their eyes or by whispering in the darkness. Finally, let me turn to foreign corrupt practices. I have selected this topic because official corruption is a problem that some U.S. financial institutions have found challenging during the last year.

In historical terms, households’ interest costs are currently very low. That the low interest rates have increased households’ ability to take on bigger loans is one cause of the upturn in house prices. During the summer and autumn, the rate of increase in house prices appears to have been dampened somewhat in certain areas, but the rate of increase is still high. Monthly data show that the annual rate of growth for the whole country during the period July to September was 10 per cent. The developments in Sweden are by no means exceptional. Internationally, there are examples of countries which have seen sharper rises in house prices, such as Australia and the UK. But there are also examples of countries where the rate of increase has been lower, such as Germany. Recently, however, the international situation has become more mixed in that house price inflation in some countries, e.g. Australia and the UK, has slackened considerably whereas in others, including the US, it has continued to pick up. In Australia and the UK, the rate of house price increases dropped when the central banks there raised key interest rates, although this occurred with a slight lag in Australia. In the US, the rate of increase has continued upwards in spite of rises in nominal short-term market interest rates. Longer-term rates, however, have not risen to the same extent since the Federal Funds rate began to be raised.
Credit risk derivatives constitute another financial innovation which has played an increasingly important role in the last years. It has contributed to avoiding credit institutions to be heavily impacted by the large credit defaults that have occured recently. Credit risk derivatives have also enabled banks to fine-tune the risk-return profile of their loan portfolios. From a macro point of view, credit risk derivatives are helping diversify and spread risk, under the assumption that buyers of risk will deliberately alter their own risk-return profile. But the ultimate risk remain and as a result, some sectors, such as insurance companies or pensions funds, which hitherto did not feel the direct pressure of a worsening in credit quality, may now find themselves directly impacted, had they sold such derivatives at an earlier stage. Against this background, and beyond the primary objective of achieving price stability over the medium-term, which part should central banks play to improve the functioning of financial markets and promote financial stability? Apart from their operational tasks –such as the management of money market liquidity and the monitoring of large value payment systems– central banks must endeavour unremittingly to create the conditions for the international economy to minimize misalignments in asset prices, excessive volatility, purely speculative phenomena and dangerous herding behaviour. This is the underlying message in central banks' repeated calls for prudence and caution. I would like now to address my third point, that is, the prospects of the European Union enlargement.

Since asset prices are typically far more volatile than real economic variables and general price levels, substantial changes in interest rates could be required to check financial imbalances, and this could have serious side-effects on the goal of maintaining price stability. BIS Review 121/2010  3  As you can see, there are many questions that have not yet been clarified. The problems I have mentioned make it clear that central banks would rapidly reach their limits if they were simply to add a further goal alongside price stability without new instruments to deal with it. The more objectives an instrument is expected to achieve, the greater the risk of wrong decisions and conflicting objectives. However, as I have already said, these problems do not mean that financial stability should be ignored completely in monetary policy decisions. Asset prices and other variables such as credit growth must be included as indicators when assessing the situation and the outlook for inflation. They are already included in the practical implementation of today’s monetary policy strategy. Yet care must be taken when interpreting such “instability variables” because they provide only limited information about future economic trends. To sum up, monetary policy can make an important contribution to financial stability. However, the set of monetary policy instruments is unsuitable for excluding all imbalances in all circumstances. Accordingly, instruments that have a direct effect are needed to counter the emergence of (global) financial instabilities.
Diagram 1  Co m p o sitio n o f G r o wth Pe r ce n tage co n tr ib u tio n s 4 3 2 1 0 -1 -2  Ne t e x p o r ts S to c k b u i l di n g G r o s s c a p i ta l f o r m a ti o n Co n s u m pti o n  -3 -4 -5 -6 19 93  19 94  19 95  19 96  19 97  19 98  S o u r c e : S t a t i s t i c s S w e d e n ; 199 1997 7 -98 f o r e c a s t b y N a ti o n a l I n s t i t u t e o f E c o n o m i c R e s e a r c h  Stock trimming in the current cyclical phase is not uncommon; it occurred at much the same juncture in the 1970s and 1980s. It has to do with the tendency to produce in excess of demand when activity is rising so as to avoid being unable to deliver if demand grows rapidly. In time, firms find they have accumulated surplus stocks and initiate an adjustment. This has the reverse effect - production rises more slowly than final demand.

Mr. Heikensten gives a review of recent developments in the Swedish economy and monetary policy Speech by the Deputy Governor of the Bank of Sweden, Mr. Lars Heikensten, given on Real-Estate Day in Stockholm on 15/5/97. Let me begin with a word of thanks for being invited to talk with you about the Swedish economy and monetary policy. Today I shall be considering three issues. First some words about the construction of monetary policy and why low inflation is a good thing. Then a look at what has happened in the Swedish economy since the crisis culminated in 1993. Finally I shall be saying something about the future outlook for the economy and for monetary policy. 1. Low inflation and economic stability The objective is low inflation The Riksbank conducts monetary policy with a target that is clear and unmistakable: the annual rate of change in the consumer price index is to be kept at 2 per cent, with a tolerance interval of ±1 percentage point. In order to fulfil the target the Riksbank varies its instrumental rate (the repo rate), which influences the level of economic activity and thereby inflation. Experience has taught us that the time lag before an interest rate adjustment has its full effect on inflation ranges from one to two years. This means that the Riksbank has to operate with a forward-looking perspective - the interest rate must be set in the light of forecast inflation one to two years ahead.
Any assessment of the consequences arising from the greater exposure of the Spanish economy to changes in house prices and in interest rates would be incomplete were it not also to allude to the parallel developments reinforcing the economy’s capacity to face potentially adverse shocks in any of these variables. In this respect, it should be underscored that the behaviour seen in recent years in the main indicators of the activity, profitability and solvency of domestic credit institutions is helping mitigate the financial risks bearing on the course of our economy in the medium term. These institutions are therefore well positioned to absorb the potential impact of shocks such as those indicated without seeing their capacity to ensure the financing of economic growth affected. Undoubtedly, the prolongation of the phase of robust demand has contributed to widening the economy's external imbalance, increasing the need to resort to foreign saving to finance private-sector spending. Overall, the external deficit, whether measured by the current account balance or by net borrowing, reached a new all-time high last year. As is known, belonging to a monetary union substantially changes the meaning and consequences of the current account balance. The breaking of the link between the exchange rate and the economy's external imbalance gives greater prominence to how this imbalance is financed. Here, the funds needed to bridge the gap between national investment and saving are being routed essentially via the issuance of securities by banks and, especially, non-bank financial institutions.

Moreover, the ongoing rise in indebtedness levels and the prevalence of debt incurred at variable interest rates entails a greater sensitivity of the Spanish economy to monetary policy decisions, against a background in which the present generosity of monetary conditions may be expected to move to a more normal footing. The influence of interest  6  BIS Review 60/2006  rates on expenditure is undoubtedly sharper in the case of relatively more indebted households, which are in the lower strata of the income distribution. Along these same lines, the strong concentration of household wealth in property and the relative weight of productive activities related to the residential sector are resulting in a greater exposure of the economy as a whole to the changes in property-market activity and prices. Regarding the latter, 2005 appears to have marked the start of a slowdown in house prices, raising (all the more so the more firmly the deceleration becomes entrenched) the likelihood of the current overvaluation of housing being progressively reabsorbed, as in previous booms. Let me remind you, however, that some element of risk is always present in all scenarios involving the absorption of a phase of overvaluation. This is a consideration that all agents should bear in mind when deciding where to place their investments.
This vigorous behaviour of exports is strongly related to the improvement in cost competitiveness and to the need for Spanish firms to search for new markets abroad, all of which has resulted in a significant increase in the diversification of export markets. Deleverage Corporate and households debt has followed a downward path since mid-2010, when it reached its highest levels in terms of GDP. The deleveraging process is now quite advanced. In September 2015 (latest available data), the ratio of debt to GDP for corporates (excluding intercompany loans) stood at 88%, and for households at 69%, 30 and 16 p.p. below the peak levels of 2010. As a result, the gap with the EMU average has been reduced from its peak of 37 percentage points (p.p. ) to 10 p.p. for non-financial corporations, and from 20 to 10 p.p. for families. Since the start of the recovery, the reduction in the indebtedness of the private sector as a whole has not prevented new bank lending from flowing to borrowers with potential profitable projects and/or a good export performance. The share of companies whose credit stock has not declined has shown an increasing trend in the last two years and the rate of decline of NFC aggregate debt has moderated. With regard to the public sector, the ratio of debt to GDP is expected to have stabilised in 2015, according to the official targets.

Several legal reforms to ensure budgetary discipline and sustainability have contributed to these developments. Among those I would highlight the 2011 Constitutional reform which enshrined the principles of budgetary discipline and fiscal sustainability the maximum legal status; the 2012 Law on Budgetary Stability and Financial Sustainability which sets these principles in Spanish legislation; and the creation in 2013 of a new Independent Fiscal Responsibility Authority. Pension reform The recent pension reform aims at achieving financial sustainability of the Social Security System. It provides automatic mechanisms to absorb the challenges originated by the foreseen gradual ageing of the population and those from adverse developments in the economy. The most important change has been the establishment of a new mechanism for calculating the annual revaluation of pensions and the introduction of the so-called “sustainability factor” from 2019 onwards. The revaluation formula sets an annual pension increase based on the system’s budget constraints, replacing the previous mechanism in which this increase was linked to changes in the CPI. The sustainability factor is an automatic mechanism linking the initial retirement pensions to life expectancy. The Spanish financial system Now, I will briefly comment on several issues relating to the current situation of the Spanish banking system. After experiencing a severe crisis, far-reaching reforms have been implemented in the Spanish banking sector.
3 See for instance Bankowski, K., O. Bouabdallah, C. Checherita-Westphal, M. Freier,  P. Jacquinot and Philip Muggenthalerthe: "Fiscal policy and high inflation", ECB Economic Bulletin, February 2023. 4 See Sgaravatti, G., S. Tagliapietra, C. Trasi and G. Zachmann: "National fiscal policy  responses to the energy crisis", Bruegel Datasets, February 2023. 5 See for instance Enarch, C.: "What European countries are doing about windfall profit  taxes", Oct. 2022. 6 See ECB: "Eurosystem staff macroeconomic projections for the euro area", Dec. 2022. 7 Staehr, K., O. Tkaevs and K. Urke: "Fiscal performance under inflation and inflation  surprises. Evidence from fiscal reaction functions", forthcoming working paper from Eesti Pank. 8/8  BIS - Central bankers' speeches

The loss of economies of scale from using the incumbent currency is another constraint preventing the move away from the current dollar-based system. As such, the dollar continues to dominate the international reserve system both in terms of reserve assets and international trade and financial settlements. 5. Given these difficulties, the current international monetary system will prevail but it may be prone to occasional instability as we have experienced in the past. In the meantime, we may still want to consider how to enhance the role of emerging market economies such as BRICS in the international monetary system. Such arrangement is arguably an avenue for these emerging market economies to share the privilege of reserve-issuing countries. It  BIS central bankers’ speeches  1  would also be a means of increasing the supply of reserve currencies to serve future demand for reserves along with the growth of the global economy. 6. To facilitate such diversification process, the BRICS need to also play their part by further opening the capital accounts, allowing currency convertibility and deepening and widening their financial markets. Once these conditions are achieved, the inclusion in the SDR basket would increase the demand for BRICS currencies. 7. It is important to stress that by adding BRICS to the international system is not a panacea. A key concern is the fact that the Triffin dilemma1 could still be problematic. In other words, the provision of global liquidity will continue to largely depend on the macroeconomic conditions of the reserve-issuing countries.