samchain/econo-pairs-v1 huggingface dataset:
Changes in our analytical framework As monetary policy has an effect after a time lag, the Riksbank must look ahead and base its interest rate decisions on forecasts of future developments, for instance, regarding economic activity and inflation. Like other central banks, we work constantly on improving our analysis work in order to produce the best possible forecasts and analyses, and these improvements in methods also contribute over time to making monetary policy easier to understand and assess. In recent years, for instance, we have focussed on improving the models we use in our forecast work. Last autumn we changed the interest rate assumption that forms the basis for our forecasts and at the same time we chose to lengthen the time horizon for the forecasts. Previously, up to and including the second Inflation Report published in 2005, the Riksbank’s forecasts were based on the assumption that the repo rate would remain constant over two years. As the repo rate is usually adjusted during the forecast period, and thereby affects the outcome of inflation and other economic quantities, it is difficult to obtain a good perception of the accuracy of the forecast with this assumption. It therefore makes it more difficult to assess monetary policy. As of the third Inflation Report published in 2005, the forecasts are instead based on the assumption that the repo rate will follow market expectations as reflected in implied forward rates. This makes is easier to compare the Riksbank’s forecasts with those made by other forecasters.

Yves Mersch: Opening of the New Face of the Euro Exhibition Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Opening of the New Face of the Euro Exhibition, Deutsche Bundesbank, Saarbrücken, 15 January 2014. *  *  *  Ladies and Gentlemen, Thank you all for coming here today to the opening of the ECB’s “New Face of the Euro” exhibition. And a special “thank you” to the Deutsche Bundesbank for hosting this event with the participation of the Banque de France. It feels very appropriate to be in a border city like Saarbrücken, at the heart of Europe, to open an exhibition like this, dedicated to our single currency. The people of this city, with its long and eventful history, must be among those who best understand the ambitious vision to bring the nations of Europe closer together. Indeed, it was through the creation of a common market for coal and steel between six European countries that the first real step was taken towards the establishment of the European Union as we know it today and that led to the creation of the euro 15 years ago. Today, the euro helps to unite 334 million people in 18 different countries. Allow me to say a brief word about the exhibition you have come to see. “The New Face of the Euro” is a travelling exhibition which has already been to a number of cities in the euro area.
Chart 6: The level of supply remains weaker than its pre-pandemic level GDP and estimated potential supply (a)  (a) Diamonds are projections for 2023 Q1, 2024 Q1, 2025 Q1 and 2026 Q1. Diamonds for GDP show MPC projections. GDP in 2022 Q4 is a Bank staff projection incorporating official data to November 2022. Data include the backcast for GDP. Estimated potential supply is derived using the MPC’s projection for the level of GDP and the level of excess demand/supply. Both GDP and estimated potential supply are indexed to GDP in 2019 Q4. Source: ONS and Bank Calculations. Chart 6, taken from the February Monetary Policy Report, shows that the Monetary Policy Committee’s estimated level of potential supply has not yet regained its pre-pandemic level. It illustrates that the Committee based its most recent forecast of the economy on the key judgement that the level would only recover very gradually. On our latest estimates, the growth rate of the potential of the UK economy – the supply side – is probably now around 1% per annum. This compares to a typical growth rate in the decade leading up to the financial crisis of nearly 2¾%. To understand these movements in supply, we can dive into its constituent parts. Supply depends on the amount of both labour and capital in the economy. Most simply, it can be thought of as the amount of labour available in the economy and the productivity of that labour in producing goods and services.

The first is the ageing of the population, which, as we have seen, has increased the share of people who are older than what at least used to be the retirement age. As shown here  Bank of England  Page 12  in blue, that accounts for around a third of the increase in economic activity. It will provide a continuing drag in the coming years. The second factor is a change in the share of working-age people actively participating in the labour market. Particularly striking is the rise in inactivity of people aged 50-64. When leaving the labour force, many people in this age group say they have retired early, making a choice about the life they would like to live. At the same time, people who have become inactive seem to have moved further away from the labour market, most commonly, they say, because their health has deteriorated. Chart 8: Long-term sickness has driven much of the persistent rise in inactivity Change in inactivity since 2019 Q4 by reason (a)  (a) Changes from the three months to December 2019, based on those aged 16–64. Other reasons include: discouraged workers; those awaiting the results of a job application; have not yet started looking for work; do not need or want employment; have given an uncategorised reason; or have not given a reason. Sources: ONS and Bank Calculation.
A third adverse side-effect was that workers did not always benefit, fully or immediately, from technologically-induced gains in companies’ productivity and profitability. In the early stages of each industrial revolution, wages tended not to rise in line with productivity, causing labour’s share of the national income pie to fall. 29  This, too, tended to add to popular discontent and damage social cohesion. Labour’s  income share has also fallen in a number of advanced economies over the past few decades. 30  A final side-effect is that periods of technological transition were often lengthy as well as painful. In the first Industrial Revolution, many displaced workers had still to find alternative work by the middle of the th  19 century, with income inequality running high and labour’s share falling. This period is known by historians as “Engel’s pause”. 31  Subsequent industrial revolutions have seen similar, if less long-lived,  pauses. If economic hardship is widespread and social cohesion damaged, a societal response is needed. One such response is the creation of new pieces of social infrastructure – in other words, institution building. Each industrial revolution saw a surge in such institution-building, to cushion the adverse side-effects of technological change on jobs and pay. In this way, the recessionary hit to workers and the economy could be shortened or dampened. Broadly speaking, two such sets of institution emerged. One set equipped workers with the new skills they needed to thrive in a new jobs environment.

Projections for imported price inflation may therefore be said to be characterised more by Knight uncertainty for a period ahead. Monetary policy under uncertainty was one of the many topics discussed in the report Norges Bank Watch 2003, where our policy response pattern and communication were evaluated in the light of the theory of monetary policy under uncertainty. This was useful input and constructive criticism which we will keep in mind in our future work. Norges Bank Watch 2003 points out, for example, that we should make a clearer distinction between additive uncertainty and multiplicative uncertainty. This distinction is most clearly reflected in our economic models. The uncertainty associated with the exogenous variables is called additive uncertainty. Examples of additive uncertainty are add factors in our economic models and other exogenous factors such as fiscal policy and the oil price. Uncertainty about the actual functioning of the economy may, however, lead to multiplicative uncertainty. Multiplicative uncertainty often involves uncertainty about the structural parameters in the model, such as the effect of the interest rate on demand and the exchange rate and the slope of the short-term Phillips curve.
That is why, for the Bank’s own Climate Biennial Exploratory Scenario exercise which we formally launch next month, we are putting emphasis on the qualitative questionnaire and an assessment of business model changes, rather than the traditional capital-adequacy metrics.9    Look at both physical and transition risks coherently as you undertake your analysis and as you determine your strategic response. Some combination of these risks will materialise. If you are assuming there is no price on carbon in your risk models, you’re implicitly assuming a high degree of warming. If you do believe some policy action is inevitable but don’t know what the shadow price of carbon is, don’t assume it is zero. That is equivalent to not knowing for sure how Bank rate will evolve but assuming it away when discounting over 30 years.   Given the sensitivity to core assumptions, there is considerable value in running credible, independent, standardised scenarios. That will make your results more easily comparable to others, even if you use in addition other scenarios and models that you find more relevant to your business.   Don’t be afraid to share lessons learned, disclose key assumptions and limitations in your analysis and where possible work together to improve understanding. Here it is worth highlighting the excellent work being done by the Climate Financial Risk Forum in the UK which brings together senior financial sector representatives to build capacity and share best practice in managing climate-related risks and opportunities.

During the Storting’s deliberations on Norges Bank’s activities, the following comment was made: “… Norges Bank had offered immediate support at a moment when it was less important to be the Bank’s director and more important to keep a cool head and a warm heart.” Norges Bank’s heart beat for the monetary system. Cold reason dictated that if the turbulence in the banking system was allowed to spread, the country’s economy would suffer a heavy blow. The year 1905 is regarded as a milestone in Norway’s history. But in the history of the monetary system, the year is almost a non-event, although Norges Bank noted some unrest through summer and autumn. There was a risk of war, and as the population braced for what might come, Norwegian banknotes, rather than gold, were in demand. In other words, the Norwegian currency was regarded as safe, reflecting the progress achieved in Norway in the shadow of the union with Sweden. When the union was dissolved, Norway stood on solid foundations with well-developed social institutions. Among these were a central bank of Norway and a monetary system that inspired confidence at home and abroad. With the German occupation of Norway in 1940, disorder returned to the monetary system. The occupying power needed money and could in practice simply commandeer the banknote printing press to meet its needs. But one thing was not seized – Norway’s gold reserves.
Between the low risk-return bank deposits and the high risk-return equity market, there should be a risk-return profile that fits that of debt instruments. The trick is how this latent demand, involuntarily trapped at the two ends of the spectrum, can be brought out and satisfied. Investor education and the creation of a retail network to market debt will help. But the costs of the latter can be quite substantial and possibly prohibitive, particularly in a low interest environment, if the retail banking system cannot be relied upon to support this wholeheartedly (which I am glad to add is not the case in Hong Kong). Furthermore, when government debt is used by the banking system as assets for acquiring liquidity support, the demand from the banks may easily crowd out the retail demand. Nevertheless, the institutionalisation of savings, if this could be organised, through for example the introduction of professionally managed provident fund schemes, should be quite effective in harnessing this demand. This would, at the same time, enable the retail demand to be transformed into a level of sophistication that, with the appropriate supply response, will greatly enhance the efficiency and robustness of the debt market as a channel of financial intermediation. The seventh point I wish to make concerns the supply side. For an economy with a continuing need to finance budget deficits there is of course a natural supply of debt instruments, unless, like Hong Kong, it has surpluses to spend. But the story does not end there.

Our CMU was linked up with Euroclear and Clearstream in 1994, with the Central Securities Depositories in Australia in 1997, New Zealand in 1998 and Korea in 1999. We also have a standing offer in the region to link up our Hong Kong dollar RTGS payment system with other currencies with RTGS capability so as to achieve payment versus payment in foreign exchange transactions, in other words, to eliminate Herstatt risk. But I must confess that, for the former, there  BIS Review 94/2001  3  has not been a lot of traffic, and for the latter, there have been no takers, so far. I hope this is merely a reflection of the fact that the financial infrastructures of others are not yet ready for these types of linkages. But I really cannot see a more robust arrangement than what we have proposed for promoting and facilitating the international financial intermediation that is found so lacking in the region. But we shall be patient. The other front that we have been working on is the replication of our Hong Kong dollar financial infrastructure for the US dollar, the popular currency for international financial intermediation. We have late last year completed this for the debt clearing system and the RTGS payment system. We have linked these to the corresponding systems in the Hong Kong dollar financial infrastructure. I won’t bore you with the technical details.
It also reflects the policy response to the shock – the MPC cut Bank Rate to 0.25%, launched a Term Funding Scheme to reinforce the pass-through of that cut, and embarked on a new round of asset purchases; and the FPC cut the CCyB. Fiscal policy has also been more supportive, and the world economy grew more strongly than we had expected. But part of that performance also appears to reflect the underlying resilience of the UK labour market. The growing flexibility of the labour market has been a theme in UK economic policy developments for some time. The share of long term unemployed has fallen steadily from its 1980s peak of 4½% to reach 1% now; even in the financial crisis, when unemployment stayed around 8% for several years, long term unemployment remained below 3%. This resilience is good news, and has been positive for households and businesses. But as policymakers it is important that we look at the underpinnings of this resilience. GDP growth since the Brexit referendum has mainly been supported by continued consumption growth, even despite the hit to real household income caused by the fall in sterling around the referendum. Consumption has instead been funded, perhaps less sustainably, by a historically low household saving ratio.

I entirely agree with Howard Davies that it is essential that the Basel framework, if it is to remain a global standard, continues to encompass a menu of options which accommodate different needs. I also do not wish to gloss over the fact that there are some very knotty areas in the proposals that have to be tackled before the Basel Committee can deliver on its objectives of greater risk sensitivity and comprehensiveness. The FSA is today going to tackle four of the most difficult, namely credit risk mitigation, operational risk, internal ratings, and interest rate risk in the banking book. I would like to take this opportunity to make a few observations on those areas that are of particular interest to us. Use of internal credit ratings The Bank has, as some of you may know, been devoting considerable thought to development of the internal ratings based approach to setting capital for credit risk. This is in part because we have been able to utilise the expertise we have built up in the course of our work on credit risk modelling, on which the Bank and the FSA held a joint conference last year. But more importantly, it is also because we consider this part of the Basel proposals to be of the utmost importance to achieving a balanced and stable framework. In particular, the availability of this approach is a very important safety valve for the market pressures and distortions that could otherwise arise from the use of external ratings.
Krzysztof Rybiński: Poland and EURO Panel speech 1 by Mr Krzysztof Rybiński, Deputy Governor of the National Bank of Poland, at a debate organised by demosEUROPA – Centre for European Strategy and Ebert Foundation, Warsaw, 26 November 2007. *  *  *  In my speech 2 in June this year I outlined the key benefits and costs of adopting the euro. Let me briefly restate what they are: On the benefits side of adopting a common currency economists usually mention the following factors: lower transaction costs, lower interest rates, financial integration and trade creation. When speaking about costs economists usually cite two groups of factors: asymmetric shocks and arising micro- and macroeconomic imbalances. It is important to note that some costs will materialize if asymmetric shocks hit the enlarged eurozone. We do not know the likelihood of such shocks though, so it is impossible to calculate the expected value of costs related to these events. We know, however, that the probability of asymmetric shocks declines with rising similarity or progressing real convergence of the EU economies. Let me also stress that the magnitude of costs depends crucially on domestic policy – prudent banking sector supervision, labor market reforms and sound fiscal policies to name a few. Adoption of proper policies reduces future potential costs related to eurozone membership and, at the same time, enhances future benefits.

As the ability to generate great ideas in the CEE region is limited, it seems that in the transition period the most important modernization channel in the region was through foreign direct investments. Indeed CEE became a very large recipient of FDI, with FDI stock to GDP ratio topping 40 percent in CEE-4 region. Only NIEs economies managed to attract higher FDI stock in relation to GDP and enjoy higher FDI annual inflows. 2  BIS Review 138/2007  However, in the global knowledge economy it is important to attract foreign direct investments to sectors that can become globally competitive, in particular to these sectors that export high-technology, i.e. high value added goods or services. While CEE-4 significantly improved the structure of exports, the high-tech goods account for only 12 percent of manufactured exports, which is the world worst result, lagging even behind Latin American countries. NIEs are world leaders and China is about to take over the second post from the United States. Above data suggests that in the long run low ability to generate innovation combined with low value added FDI may harm the CEE ability to improve productivity. On top of above-mentioned factors I should also add that in the last few years we have witnessed very fast growth rates of asset prices in CEE. The amount of loans granted to households increased 3.5 times since 2004 and almost 10 times since 2000.
Such effects probably leave a mark on the development of service prices, as services are not traded internationally to the same extent as goods. Increases in services prices have been small in Sweden since the end of 2012 – both compared with normal developments and compared with other countries (see Figure 2b). A further explanation for the abnormally low price increases could be expectations of an abnormally low future inflation rate. In monetary policy analysis one usually assumes that there is a forward-looking element in the pricing, as it may be perceived as costly to change prices. If one is expecting weak demand and thus low price increases in the future, one will not want to increase one’s prices very much today. Expectations of a low future inflation rate can thus become self-fulfilling and this is something we would prefer to avoid, as it makes it more difficult to attain the inflation target in the future. According to surveys of inflation expectations among money market participants, employers’ and employees’ organisations as well as purchasing managers, expectations for 1 and 2 years ahead have declined recently, which may have significance for pricing behaviour. Inflation expectations 5 years ahead are fairly well anchored around 2 per cent, but it is important that the development of the past couple of years does not continue so that the longer-term expectations also end up far from the target (see Figure 3). Figure 3.

This type of monetary policy is known as leaning against the wind, and in this case the wind would be growth in household debt. Household indebtedness has affected the monetary policy assessment in Sweden in earlier periods, too, but it is primarily since autumn 2012 that it has explicitly been cited as a reason for a higher repo rate than is strictly justified by the prospects for inflation and resource utilisation.1 Although other central banks have also referred to high indebtedness and mentioned financial stability risks in connection with monetary policy decisions, few central banks have faced such a clear conflict of objectives as the Riksbank. What this entails is either to keep the repo rate higher to slow down the build-up of debt, or to keep it lower to bring up an inflation that has long been below target at the same time as resource utilisation has been low. Personally, I have been sceptical of the policy conducted, which has meant that I entered reservations against the decisions over a long period of time. Now that inflation has recently moved even further away from the target, the Executive Board has been able to agree on the monetary policy decisions. The repo rate was cut most recently in December last year and the repo-rate path was lowered. Why inflation has been so low is something of an open question. I believe that the policy conducted has been an important contributory factor. At the same time, I believe that its effects on household indebtedness have been minor.