samchain/econo-pairs-v1 huggingface dataset:
The production function approach On the other hand, our ability to analyse why output deviates from its long-term level can be improved if a production function (PF) approach is used. This is a common technique used by international organisations such as the IMF and the OECD. The Riksbank has used such an approach since 2010.7 A production function shows how output depends on production factors and technological level. In the most common case, we may consider that output (Y) depends on the number of hours worked (H), the capital stock (K) and total factor productivity (TFP). The level of TFP determines how much output is derived from a given amount of hours and capital.8 TFP can thus be seen as a measure of the level of technology. By specifying a form for the production function, the following breakdown is obtained:9  The wage share in the economy is usually about two-thirds, which is why hours are considered to stand for two-thirds of the production factors (  ) and capital for the  ). The contribution of each factor to output can then be calculated. remaining third ( Output increases through more capital weighted by a third, more hours worked weighted by two thirds and improved TFP. But, in practice, it is difficult to measure TFP. Instead, it must normally be estimated as a residual, often called a Solow residual after Nobel Prize winner Robert Solow. The output that does not depend on the input factors of capital and labour is assigned to TFP.

2  BIS central bankers’ speeches  The Riksbank’s calculations of potential GDP Resource utilisation can be measured in several different ways. Here, I will demonstrate how we, at the Riksbank, calculate measurements of resource utilisation based on GDP and potential GDP, as well as hours worked and potential hours worked. Potential GDP refers to the level of GDP that is consistent with a use of the available resources that is sustainable in the long term and that does not push up inflation. If GDP exceeds the potential level, then resource utilisation is high – and vice versa. We call the difference between actual and potential GDP the GDP gap.6 When resource utilisation is normal, GDP is equal to potential BNP, and the GDP gap is equal to zero. Consequently, potential GDP does not refer to the highest level GDP may reach over the short term. In Figure 1, the trend development of GDP is represented by a Hodrick-Prescott trend (HP trend). An HP trend is something between a linear trend and the actual development of GDP. The HP trend is a common and often fairly good measure of the underlying long-term development in GDP during normal cyclical fluctuations. But the HP trend is not good at estimating the underlying development of GDP at the end of a time series and it gives no guidance as to why output deviates from its trend level.
This insight has tremendous significance for Switzerland where, as I have attempted to show, much of the non-tradable sector of our economy remains tied up in a structural straight jacket. Eliminating this straight jacket or at least unbuttoning it would have wide-ranging positive effects on the Swiss economy. If our legislative authorities rise to that challenge, they are likely to replicate the competitionboosting effect that the forces of globalization have exerted on the external sector in the domestically oriented sectors of our economy. Higher productivity growth rates would ultimately lead to higher growth rates and thus reverse a worrying trend of declining relative growth dynamics in Switzerland in comparison with other OECD countries.11 Such productivity driven growth dynamics should lead to lower prices across a sizeable part of our economy. Obviously, this statement needs to be qualified. he Swiss economy will always remain vulnerable to developments abroad. A significant demand or supply shock to the global economy could reverse the beneficial impact on domestic prices of further domestic liberalization. For example, widespread protectionist measures rolling back the achievements of globalization or widespread geopolitical conflict and uncertainty would certainly threaten the broad achievements with regard to price stability. Nonetheless, breaking up the rigidities impeding competition in the domestically oriented sectors of our economy has every chance of rendering monetary policy not only more  10  Alan Blinder (1998): “Central Banking in Theory and Practice”. Cambridge: MIT Press.

The court’s adjudication role in Islamic finance is reinforced by the support from the SAC in its capacity as a consultative body to the Malaysian judiciary system. Under the law, the Central Bank of Malaysia Act 2009 prevails, if a question concerning a Shariah matter arises in any proceedings relating to Islamic financial business, where the court or the arbitrator shall take into consideration any published rulings of the SAC or refer the matter to the SAC for its ruling. The SAC’s rulings are binding on the courts and arbitrators. This referral system preserves and enhances the sanctity of Shariah rulings and the consistency in the interpretation and application of Shariah principles in Islamic financial transactions. To complement the court system, specific arbitration rules for Islamic banking and financial services have also been developed, enabling disputes for both domestic and international cases to be dealt with by the Kuala Lumpur Regional Centre for Arbitration (KLRCA). Such comprehensive legal infrastructure for Islamic finance is unique to Malaysia and essentially reflects the support and dedication by the legal fraternity in keeping abreast with the development of Islamic finance. Adding to the strength of the institutional and legal framework in Malaysia is our continuing emphasis on human capital development. Various measures have been implemented to ensure that our market players, including the judges and lawyers, are well-trained in Islamic finance.
11  “Norges Bank operates a flexible inflation targeting regime and seeks to achieve an interest rate path that provides a reasonable balance between the objective of bringing inflation up towards 2.5% over time and stabilising developments in output and employment.” - Norgesbank, Inflation Report, March 2006. 12  According to the Federal Reserve Act, the Board of Governors and the Federal Open Market Committee should seek “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”  13  Cukierman A. “Central Bank Independence and Policy Results: Theory and Evidence”, Lecture prepared for the International Conference on: “Stability and Economic Growth: The Role of the Central Bank”, Mexico City, 14-15 November 2005. 2  BIS Review 42/2006  way central banks should respond to asset prices. Fed Chairman Bernanke claims that central bankers should respond to asset prices only insofar as they affect output gap and thus inflation 14 . Another FOMC 15 member Donald Kohn has described this approach as “conventional strategy” and proposed, what he called, an “extraaction” policy 16 . Monetary “extra action” – according to Kohn would be required if there were clear signals of an asset bubble building up – especially a one fuelled by excessively loose monetary policy – and if costs of “extra action” policy were smaller than the costs of further build-up and subsequent collapse of a bubble.

10 Monetary policy can only act in a crisis if its credibility is intact. Some central banks, including the SNB, have reached the zero lower bound for interest rates as a result of the recent crisis. Even after hitting the lower bound, these central banks are still able to pursue their objectives. In order to retain their freedom of action, they are resorting to unconventional measures. Some of these measures, such as purchasing securities of private sector issuers, are described as quasi-fiscal, meaning that they are part of monetary policy but, like fiscal policy, they have distribution effects. For this reason, they attract public and political attention and can therefore threaten the central bank’s independence. There is also a danger that politicians, economic agents and the public will expect monetary policy to have a solution for every problem. Numerous problems in the real economy, such as the lack of competitiveness and the current account imbalances, are structural in origin. In this area, it is the responsibility of governments to introduce reforms. Resolving such problems is outside the scope of monetary policy. The management of the recent financial and economic crisis has resulted in a much greater overlap between fiscal and monetary policy activities than before the crisis. In some countries, this has given rise to tension between fiscal and economic policy. The lack of a sustainable fiscal policy can lead to excessive demands being placed on monetary policy, which could result in the latter also straying from the path of stability.
By contrast, American policymakers might have found it helpful to devalue the dollar in Texas when oil prices collapsed in the mid-1980s or the dollar in New England at the end of the defense-led growth of the late 1980s. These options, however, simply were not available. In retrospect, it was the discipline fostered by the absence of the opportunity to alter regional exchange rates that forced our firms, local governments, and workers to reorganize, become more efficient, and grow in what are now some of the most productive areas of the United States. Similarly, if national labor markets in Europe become more flexible and efficient in the presence of a common currency and firms learn to count only on their own resources -- with no help from an occasional exchange rate adjustment -- European capital and labor markets may themselves become more integrated. And if greater integration of labor markets can only proceed slowly -- given persistent and unavoidable cultural and language differences -- this need not be the case for financial markets, where the disappearance of exchange rate risk will cause capital to move in response to interest rate differentials of only a very few percentage points. In this context, I would like to make clear that I do not view as ideal the U.S. model where the burden of recessions tends to fall heavily on the shoulders of workers, who may be obliged to move across regions and industries in response to the business cycle.

Switzerland’s only major drawback is the fact that it is a lightweight in the geopolitical arena, which makes it almost impossible for it to defend itself against protectionist tendencies and discriminatory measures taken by big countries. The Swiss government must therefore take a strong stand on behalf of free trade, while also ensuring that the private sector operates within the best possible framework for its further development. Ultimately, our future welfare depends on the vitality of the private sector, not on any state intervention. BIS Review 166/2009  1
It is not difficult to find reasons why this could be the case, particularly not in the period after the financial crisis. The supply of acceptable collateral on the financial markets decreased when a significant share of the assets were lost during the financial crisis. The sovereign debt problems in the euro area may also have reduced the supply of safe assets. The demand for safe assets may have increased due to new financial regulations, such as Basel III. Finally, central bank purchases of government bonds reduce supply on the financial markets. To summarise – making predictions about future economic development is, as everyone knows, very difficult. The economic system is complex and new innovations and changes that are difficult to predict happen all the time. The theory of secular stagnation was presented for the first time as early as the 1930s by the American economist Alvin Hansen. 8 It proved to be incorrect at that time and I have suggested that there may be reason to still be sceptical about it now. 9 The current low interest rate environment may very well have been caused by factors other than secular stagnation and need not therefore be long-lasting. A look-back in history shows that real interest rates often vary in longer cycles. They have been on the same low levels as today only to then return to more normal levels.10 The difficulty we now face is assessing how long this cycle of low real interest rates will last.

The Swedish banking sector is large by international standards and strongly concentrated on a small number of major banks that are dependent on foreign funding – about half of their funding is in foreign currency. This poses a further risk to financial stability. The Riksbank therefore needs to hold a foreign currency reserve that is large enough to satisfy the needs that arise in a financial crisis, in other words the currency reserve needs to be at least as large as it is today. Another challenge that monetary policy needs to relate to is the free movement of capital. In combination with a rapid financial development, this has led to asset prices, indebtedness and exchange rates being increasingly affected by monetary policy in the major currency areas. This has progressively limited the degree of freedom for monetary policy in smaller economies. How to increase the degree of freedom for monetary policy, by, for example, implementing macroprudential policy measures that could put a dampener on indebtedness, is being discussed internationally. This is highly relevant for Sweden and I have brought this matter up in several of my previous speeches to the Swedish Economics Association. I will also return to this problem today. Conducting monetary policy is about being constantly prepared to meet new types of challenges and economic problems. Low interest rates are needed today in order to stabilise inflation at around 2 per cent, but they must be weighed against the risks of low rates over a longer period.
Normalisation of the Riksbank's securities portfolio has begun In February, the Riksbank decided to actively reduce its asset portfolio by selling government bonds. The decision was unanimous. The purchases of government bonds were implemented to make monetary policy more expansionary. We are now in a phase where monetary policy needs to be tightened and it is natural to do so using all of our tools. An alternative to actively selling securities is to simply let the portfolio decrease as the securities mature. Last year the Riksbank's portfolio decreased for this reason, but in April the Riksbank began selling government bonds to a value of SEK 3.5 billion per month. At the margin, this contributes to higher interest rates on government bonds and thus a tighter monetary policy. At the same time, the increase in the supply of a secure and easily tradeable asset can make the bond market function better. Under the assumption of sales for SEK 3.5 billion every month, and of other bonds being held until maturity, the asset holdings will amount to just under SEK 200 billion at the beginning of 2026, see Figure 6. We have chosen not to sell other assets in our portfolio, i.e. covered, municipal and corporate bonds. These bonds will nevertheless decrease in number at a relatively fast pace as they mature. We also have few experiences of normalising large holdings of bonds so far and it is therefore difficult to know how it will affect the financial conditions.

Former Bank of England Governor Mervyn King recently launched a more drastic idea, that a bank must hold more assets that can be used as collateral in the central bank than it has liabilities (including deposits) that can suddenly flow outwards.10 In this way, central banks could always intervene and have sufficient access to liquid funds. Admati et al. note in a response that the consequence of this would be that the authorities also supported bad banks, which would reinforce moral hazard problems and lead to banks that should be wound up not being wound up.11 There is a risk that we would then have so-called Zombie banks, and this would have negative effects on growth and efficiency. In any case, I believe that the instability of deposits is an issue that legislators and regulators around the world need to analyse more closely. The resolution framework also needs to be reviewed The second question concerns the resolution framework. This was introduced after the global financial crisis and the explicit purpose is to make it possible to resolve a systemically important bank in an orderly manner. The idea is that losses should be borne primarily by shareholders and secondarily by bondholders. Public funds should not need to be used. Allowing bondholders to bear potential losses also reduces the problems of moral hazard. So if you can use an effective resolution framework as intended, you reduce the problems created by the deposit guarantee. 10  See King (2023). 11 See Admati, Hellwig and Portes (2023).
Now, imagine a highly credible and transparent central bank with an inflation target of 2%. If the credibility of this particular central bank is such that, no matter what it does in the short run, market participants believe that inflation in the long run will remain solidly anchored at 2%, then the 10-year inflation-  7  See, for example, Freedman (1996) and Freedman (2002). BIS Review 30/2006  5  indexed bond will always reflect an expected inflation rate of 2% in ten years time. If the central bank takes excessive comfort from the fact that market expectations reflect stable inflation expectations, it may over time deviate from the optimal policy path. At some point, markets will detect the policy error. In such an admittedly extreme scenario, the likely reaction of the market place would be a sudden adjustment of inflation expectations with a corresponding costly loss of credibility for the central bank. 8 This example illustrates what Alan Blinder (1998) calls the "dog chasing its tail" problem: Financial markets look for guidance from the central bank, the central bank looks for guidance from financial markets, and both parties temporarily lose sight of the underlying factors determining inflation, namely the output gap in the short to medium-run, and money growth in the long-run. To avoid this trap, central banks should exercise due caution when making use of financial market expectations. Financial markets provide useful information for a central bank in search of the optimal monetary policy path.

My point of departure will be the monetary policy instrument, which is typically a short-term interest rate. In light of the close links between monetary policy and financial markets, I will then explain the benefits of central bank transparency. My comments will end with a note of caution concerning the information value of financial market prices in a world of increasingly market oriented and transparent central banks. 1. How does monetary policy affect financial markets? Monetary policy is aimed at preserving price stability. In some countries, central banks operate under mandates that refer to additional objectives such as full employment, maximum sustainable growth, stable interest rates or stable exchange rates. To meet their objectives, central banks intervene in financial markets. It is through the financial markets that monetary policy affects the real economy. In other words, financial markets are the connecting link in the transmission mechanism between monetary policy and the real economy. I will focus on the first part of the transmission mechanism only, i.e. the transmission from the monetary policy instrument to financial markets. Monetary policy affects financial markets through various channels. However, the transmission process from monetary policy to financial markets and finally to the real economy has a single source: the monetary policy instrument. Typically, the monetary policy instrument is a financial market price which is directly set or closely controlled by the central bank. For most central banks with floating exchange rates today, the monetary policy instrument is a short-term interest rate.
That is because the rise of international free trade – and the stability that comes with it – has historically depended on the backing of a global hegemon. This was evident during the British Empire in the 19th century, as it was with American support in the wake of the Cold War. [3] However, major economies – led by the United States and China – are now increasingly using trade to limit the ambitions of geopolitical rivals. That could fragment world trade with potentially huge costs. The IMF estimates that severe trade fragmentation may cost global output roughly 7% in the long term – an amount similar to the annual output of Japan and Germany combined. [4] These geopolitical winds are reshaping the second feature of this new map: supply. We are seeing strategic considerations becoming increasingly important in where suppliers are located. The US Inflation Reduction Act, for example, is deliberately aimed at “reshoring” production and reducing the country’s reliance on strategic imports like batteries. [5] China is also seeking to reduce its own dependence on the rest of the world. And some surveys suggest that even firms in “non-strategic” sectors are increasingly likely to regionalise their supply chains. [6] This in turn is leading to the third key feature: the growing importance of security. With the security of supply for critical inputs no longer guaranteed, we are likely to see a new “scramble for resources”.

Prasarn Trairatvorakul: Attributes of quality global citizens in the next decade Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the International Conference on General Education “Roles and Experiences in Cultivating Global Citizens”, Bangkok, 11 January 2012. *  *  *  Distinguished panelists and moderator, Ladies and Gentlemen, It is an honor and pleasure to be invited to share my views on the issue of global citizenship in the next decade. On this issue, I wish to focus on two important dimensions, namely driving forces and readiness. First, I will look at the progress of ASEAN integration as the major driving force toward global citizenship. And second, I will briefly discuss the necessity to develop global competencies to ensure the readiness of local talents with an aim to integrate with global talents. On the first issue, I should stress that global citizenship is linked to the relationship between an individual with the state. Since we now live in a virtual world connected by technology, today’s global relationship should perhaps be better defined as an association with economic opportunities available to an individual irrespective of physical presence. Moreover, global citizenship implies the shift from domestic focus to global focus with the ultimate aim of attaining global standards in terms of operating environment and resource management. At this juncture, however, I see it as unrealistic to think about global citizenship without first attaining regional citizenship.