samchain/econo-pairs-v1 huggingface dataset:
Faced with collapsing demand, all countries have adopted expansionist monetary and fiscal policies. Interest rates have been slashed and a number of relief packages involving considerable sums launched, exacerbating the public debt burden. Such strategies are appropriate in times of emergency. Nevertheless, we should always bear in mind that the difficulties confronting us today are in all likelihood the consequence of excessive borrowing and of monetary policies that were too accommodating – two factors that helped derail the international economy. Strange as it may seem, the stimuli used in the battle against recession today are the very ones that were abused in the past. Moreover, once the economy is back on track, the prime political and economic challenge will be to put in place the corrective measures needed to ensure a more balanced course in future. The subsequent path of growth may not be as steep as it was in the past, but for that it will be all the more sustainable. For our part, we are aware that maintaining price stability in our country over the medium term will require us to re-establish healthy monetary conditions by absorbing excess liquidity in good time. We have both the means and the will to do so. *** The global economy has entered a painful phase of putting its house in order; a phase marked by weak growth and high unemployment. Profoundly embedded as it is in international trade, the Swiss economy cannot escape these difficulties.

It is simply a case of adapting the implementation of this strategy to an environment characterised by interest rates close to zero and a Swiss franc once again in the role of a safe haven. Contrary to certain reactions aired in the media, the action to counter the rise of the Swiss franc against the euro is not a form of competitive devaluation, which would inevitably work against the interests of our country in the long run. Rather, it is a key operational tool which, under the given circumstances, helps us perform our mandate with regard to price stability, in other words to preserve our economy from both inflation and deflation. The outlook for 2009 The year 2009 will see the steepest decline in Switzerland’s GDP since 1975. Exports, normally the driving force of our economy, will continue to be weak, and the lack of confidence in the corporate sector will weigh on investment demand. Moreover, all signs point to a further slackening of consumption in view of growing uncertainty about households’ purchasing power. All in all, the outlook for the near future is anything but bright. Switzerland does not constitute a special case – all industrialised countries are faced with a similar downturn, especially those with high exposure to foreign trade.
A clear monetary policy target is a necessary complement to the fiscal guideline with a view to ensuring reasonable macroeconomic stability. The operational target of monetary policy as defined by the Government is inflation of close to 2.5 per cent over time. The inflation target provides economic agents with an anchor for their decisions concerning saving, investment, budgets and wages. Households, businesses, public entities, employees and employers can base decisions on the assumption that inflation in Norway will be 2½ per cent over time. The rise in labour costs is an important factor underlying Norges Bank’s assessment of the inflation outlook and interest rate decisions. If wage growth is too high - both in manufacturing industry and other industries - the internationally exposed sector will be affected in two ways. First, high wage  BIS Review 13/2003  3  growth will itself reduce earnings and employment. Second, the interest rate will be raised. Normally, this will lead to an appreciation of the krone, with a further reduction in earnings and employment. This will amplify the impact of high wage growth on manufacturing industry. Since the new guidelines on the use of petroleum revenues were introduced in a period when the labour market was tight, the krone was expected to be strong in periods. The interest rate differential between Norway and trading partners has resulted in a strong krone. The wide interest rate differential is due to the historically low level of interest rates abroad.

In fact, studies within our Bank indicate that gradually more weight is attached to past inflation in forming expectations and as of mid-2006 inflation expectations have become more susceptible to variables like exchange rate and risk premium. According to the Central Bank, if this situation becomes permanent, the cost of fighting inflation will increase. Therefore, in an open letter to the Government in June 2008 the Central Bank proposed setting new targets for the medium term in order to control inflation expectations and to re-establish the reputation of the implemented regime. The Government accepted this proposal and the inflation targets for 2009 to 2011 were revised as 7.5, 6.5, and 5.5 percent, respectively. Hence, the inflation targets to be used as a reference by economic agents to form their expectations were set with the objective of containing inflation expectations and reducing the cost of the fight against inflation. Bearing in mind that altering inflation targets might lead to the deterioration in the inflation expectations in the short run, the Central Bank implemented the target revision along with monetary tightening. Thereby, the negative impact that might be created by the upward revision of targets has been contained. As a matter of fact, during the period of target revision, a slight deterioration was observed in the medium-term inflation expectations but with diminishing political uncertainties and monetary tightening, inflation expectations have been contained (Chart 3).
Monetary policy and financial stability As I described earlier, the idea is that changes in the repo rate will affect inflation via total demand, as well as via effects on the exchange rate. Repo rate adjustments are thus primarily governed by the inflation target and not by financial stability considerations. However, certain aspects that are normally analysed within the framework of our financial stability work also affect demand and thereby inflation. Take, for instance, the present situation of rising house prices and substantial household indebtedness. House prices affect households’ decisions on saving and consumption via wealth effects and thereby also demand in the economy. Consumption decisions by households with debts are affected by changes in the percentage of their income that is used to make interest payments. These aspects should therefore be taken into consideration when making monetary policy decisions. When financial stability risks arise, they may also be connected to real economy risks. However, these risks are difficult to quantify and are therefore not captured by our usual forecasting methods. It is therefore not possible to rule out situations arising when the timing of an interest rate adjustment is affected by whether it may reduce financial stability risks. However, these considerations definitely do not entail any new objectives for the Riksbank. The fact that the experiences of deregulated financial and currency markets are as yet limited to a few business cycles contributed to the difficulty in establishing simple policy rules in this field.

The need for mandatory disclosures will certainly continue, but firms should also be encouraged - and in some cases required to make otherwise non-mandatory disclosures if accounting statements are misleading or incomplete. I would further argue that it is simply not enough for companies to disclose information. Investors also have to pay attention to the information disclosed. A lot of information underlying the proposed governance reforms is already disclosed. For example, by reading proxy statements, investors can make up their own minds about such issues as whether the audit committee members have sufficient financial expertise and how many stock options executives have received. What is clear is that the outstanding performance of the U.S. economy over the past decade lulled investors into a false sense of security. Recent events may, therefore, serve as a wake-up call - not only to management that the market is watching them, but also to investors and analysts to pay attention to the information already disclosed. While there have been many major improvements in disclosure practices over the past several years, with hindsight, I think that less progress was made than initially hoped and more could have been done. In short, I believe that there is a public policy need to rethink the entire disclosure framework. In my remarks this evening, I have underscored a number of issues that I believe merit immediate attention. Not one of these issues presents obstacles that cannot be addressed through the cooperative efforts of private and public sector participants.
I would like to emphasise that I am talking about much more than fiscal policy “helping monetary policy to reach the inflation target”, even if this by no means is an unimportant aspect. I often point out that the inflation target is not just the Riksbank’s target but is a target for the economy as a whole. Of course, it is the  16 Leeper (2018) goes even further and questions whether the Swedish monetary and fiscal frameworks really are  mutually consistent. 17 For a review of research into the global real interest rate and its future development, see the article “Are low global real interest rates set to continue?” in Monetary Policy Report, November 2021. One key paper is that of Auclert et al. (2021), which suggests that the real equilibrium interest rate may fall further. 18 Higher energy prices have been an important explanation for the rising inflation rate. These have also been pushed up by a number of factors that are not related to the pandemic, such as weather effects. 19 This regime is sometimes referred to as ‘fiscal dominance’; see, for example, Leeper (2018, 2021). 10 [17]  Riksbank that is appointed to try to fulfil it, but whether this succeeds or not is of great importance from a much broader economic perspective. There is strong political support for the inflation target, which, in turn, is based on the conviction that the economy simply works better with a specific, low and stable inflation rate.

In the justification for its new strategy, the Federal Reserve notes that the level of the policy rate that is compatible with maximum employment and 4 For a more detailed account, see for example, Jansson (2020). 5 It is difficult to know exactly where this bound lies, but my guess is that, in Sweden, it is slightly lower than –0.5  per cent, as the Riksbank’s repo rate was for a period, and it probably also depends on how long the repo rate remains at negative levels. 4 [17]  long-term price stability has fallen relative to its historical average. The policy rate will therefore be limited by its lower bound more often than has been the case in previous periods. In order to anchor long-term inflation expectations at 2 per cent and prevent them from falling below this level – which would make the lower limit binding even more often – it has chosen to specify the target as an average of 2 per cent. This makes it clear that ‘bygones’ are not ‘bygones’: if inflation has been below the target for a period, this must be compensated for by inflation then being above target for a period.6 In turn, as I have just mentioned, the ECB has moved on to a symmetrical target of 2 per cent in the medium term. In practice, this means that the target has been raised slightly, as previously inflation should have been “below, but close to, 2 per cent”.
But if, over recent years, many companies have been largely focussed on survival, waiting for some of the uncertainty to be resolved before actively considering opportunities to invest and expand, it’s possible that the easing of borrowing costs brought about by these policies has not yet fully translated into spending decisions. As uncertainty lessens, past monetary policy actions may gain greater traction, thus further supporting the recovery. So there are good reasons for thinking that the reduced uncertainty may help to facilitate this handover to business spending we need to see, and that some of those effects may be long lasting. But we also need to be alive to the possibility that the events of the past few years may colour and contaminate business behaviour for many years to come. It may be a long time before companies look ahead with the same confidence that they did during the period of remarkable stability prior to the crisis. Before their trust is restored that the authorities are able to stop really bad things from happening. Before they rebuild their relationships with their banks. On this final point, many companies were let down by their banks during the financial crisis, and I fear that many will be reluctant to return to a business model which relies on their banks providing liquidity and support in times of need. The reluctance today of some companies to borrow from their banks may be less a lack of demand and more a breakdown of trust.

A recovery appears to have finally taken hold, spurred by reduced uncertainty and easier credit conditions. There are good reasons for optimism that the recovery will be durable. But the journey back to full recovery is long and many challenges still remain. Monetary policy is there for the long haul. That is the essence of our forward guidance. 6  BIS central bankers’ speeches  References Haddow, A., Hare C., Holley, J., and Shakir, T. (2013) “Macroeconomic uncertainty: what is it, how can we measure it and why does it matter?”, Bank of England Quarterly Bulletin, 2013 Q2. Ben Haim, J. (2010) “Info-Gap Economics: An operational introduction”, Palgrave McMillan Bloom, N. (2009) “The Impact of Uncertainty Shocks”, Econometrica 77:3, pp 623–685 Bloom, N., Bond, S. and Van Reenen, J. (2001). “The dynamics of investment under uncertainty”, IFS Working Paper, No. W01/05. Bond, S.R. and Lombardi, D (2004) “To buy or not to buy? Uncertainty, irreversibility and heterogenous investment dynamics in Italian company data”, IMF Working Paper no. 04/104. Disney, R, Haskell, J and Heden, Y (2003), “Restructuring and productivity growth in UK manufacturing”, Economic Journal, Vol. 113, Issue 489, pages 666–94. Dixit, A. and Pindyck, R. (1994) “Investment Under Uncertainty”, Princeton University Press Gilchrist, S, Sim, J and Zakrajsek, E (2010), “Uncertainty, financial frictions, and investment dynamics”, 2010 Meeting Papers No. 1285, Society for Economic Dynamics. Lazear, E and Spletzer, R (2011), “Hiring, churn and the business cycle”, NBER Working Paper No. 17910.
15 Chart: Money market rates Nevertheless, in view of how far monetary policy has been stretched, growth abroad has not been overwhelming. The expected rise in policy rates has been repeatedly pushed further out in time. Traditional advanced economies are facing deep structural challenges related to low growth that must be addressed by other measures. Monetary policy easing and low interest rates do not result in permanently higher growth. The causal relationship goes in the opposite direction: prospects for prolonged low growth result in a long period of low interest rates. Ripple effects on the Norwegian economy Monetary policy in Norway is oriented towards keeping inflation low and stable. The operational target is annual consumer price inflation of close to 2.5% over time. The inflation target provides a nominal anchor for the economy. When inflation expectations are firmly anchored, monetary policy can serve as the first line of defence when the economy turns down. The key policy rate is set with a view to stabilising developments in the Norwegian economy. At the same time, the interest rate level abroad influences the policy rate in Norway, particularly through the exchange rate. Norges Bank’s interest rate forecasts have been adjusted as expectations regarding policy rates abroad have fallen. The alternative could have been an excessive appreciation of the krone and the risk of excessively low inflation. The interest rate level in Norway was therefore low even before oil prices began to fall last summer.

But, as I said, now is the time to analyze and think. BIS Review 128/2007  3
In the current environment, the pressure is for greater market orientation and liberalisation on the premise that competition would lead to pricing that would facilitate a more efficient allocation of resources. This, however, is not the only objective that is to be achieved. Consideration needs to be given to the objective of promoting growth, financial stability and social stability. Some of these objectives are conflicting and need to be carefully balanced, taking into account the trade offs. Increasing the tolerance level amidst a volatile environment The pursuit of efficiency and competition has to be balanced with the objective of attaining soundness and preserving stability. Given the unique characteristics and peculiarities of emerging economies, the transition to a more liberalised environment would demand appropriate sequencing of measures to be taken. Factors commonly ascribed as key in achieving and safeguarding financial stability include sound macro-economic management, effective regulatory and supervisory framework, greater transparency and disclosure of information, increased market discipline, dynamic accounting and auditing standards as well as the existence of strong corporate governance. For emerging economies, the requirements extend beyond these factors to include other areas, namely the development of the necessary financial infrastructure that supports a strong foundation that is able to provide depth and breadth to the financial system and economy as a whole.

The new trends emerging in Asia point to significant transformation taking place in the economies in Asia. These trends have contributed toward increasing the growth prospects for the region. Today, my remarks will focus on these fundamental trends that have emerged in Asia and the promise that they hold for the prospects for this region. I would also like to take this opportunity to share with you the implications of these trends for Malaysia and the strategies and responses that we have adopted in addressing the challenges that we are faced with in this more difficult environment. Emerging trends in Asia: Economic transformation in Asia Asia’s resilience can be traced to several important trends which have contributed to the economic and financial transformation of the region. The dynamic transformations taking place in our region are significant and varied. The region accounts for more than half the world’s population and 23% of the world economy. The growth for the region as a whole is forecast to be one and half times higher than the global average. Of significance, is the trend towards greater integration in the region on several fronts. Intra-regional trade in Asia has increased significantly in recent years. Intra-regional exports account for about one third of total exports of the region. Intra-regional trade within ASEAN has increased significantly to account for about 24% of the region’s total trade, exceeding ASEAN’s trade with the United States. Trade with China, India and Korea has increased dramatically.
This global, common factor explains not only the change in the inflation trend (the increasing inflation between 1960 and 1980 and its subsequent decrease), but also inflation fluctuation over a business cycle. The research has also shown that, where domestic inflation deviates from the “global” inflation, it exhibits a “global-inflation-reverting” tendency. As a consequence, modelling and forecasting of domestic inflation may be improved significantly by taking into account the “global inflation”. The fast-progressing globalisation is closely related to offshoring and outsourcing, whose scope is also growing. Unfortunately there is not much hard data that would allow for assessment of the scale of the phenomenon. Offshoring analysis is available only for selected countries and covers only selected industries. However, the growing scale of the phenomenon is reflected by data on global trade in goods and services and on foreign direct investment. Over the past 15 years, the shares of individual regions in the global trade have changed significantly, whereby the decreasing share of the EU is accompanied by increasing shares of the developing countries, including the Asian countries. Globally, foreign trade expressed as percentage of the GDP increased from the average 19% of the GDP between 1980 and 1989 up to 25% between 2000 and 2004. Table 1.

After the crisis of 2008-2009 the Federal Reserve increased the monetary impulse beyond the usual limits set by the interest rate. It not only took it to zero percent, but it also added a quantitative boost through the purchase of bonds. In a normal environment, it probably would have been unnecessary to take the impulse to such extremes, and probably the economy would have taken less time to react. However, 11  the post-crisis damage was very large and only the persistence of the momentum has allowed the US economy to make a successful recovery after nine years. We see something similar in Europe, with the difference that they took longer to apply the stimulus, suffered a banking crisis in 2011 and, in addition, the very agreement procedures of the European Community make it more difficult to take extreme decisions. Finally, as I said, monetary policy must be credible, in order for the economic agents’ reactions to its impulses to be in line with the objective. If inflation expectations are aligned with the two-year-ahead target of 3%, agents’ decisions, market interest rates, and financial asset prices will harmonize with low, stable inflation. The need for persistence and credibility raises a warning about how inefficient an interest rate reduction may be if perceived as temporary by the market. This is very important, because in practice if agents consider that a rate cut will be very short lived, it will probably have no meaningful effect on the yield curve or on the decisions of households and businesses.