samchain/econo-pairs-v1 huggingface dataset:
After ten years of low interest rates, a number of countries may now be caught in what could be described as a liquidity trap. Then, monetary policy is no longer able to stabilise the economy. Other measures are needed. In a number of countries, arguments are being made for the use of fiscal policy measures. The discussion about the use of unconventional monetary policy also circles around the dividing lines between monetary and fiscal policy. First, I would like to call your attention to a possible misunderstanding. Although it is true that quantitative easing involves the creation of new money by central banks to pay for their bond purchases, this does not mean that the central bank prints money to fund public finances. Under quantitative easing, the public sector in its widest sense, including the central bank, purchases one form of debt – government bonds – and replaces it with another – central bank reserves. Quantitative easing affects the economy via lower long-term interest rates. Some people nevertheless point out that central bank government bond purchases can seem “quasi-fiscal”.8 Central bank purchases of government bonds in the secondary market can give government authorities an incentive to issue more government debt. The central bank could thus, indirectly, be in the position of contributing to funding government spending. This could blur the distinction between monetary and fiscal policy. A provision that clearly prohibits Norges Bank from extending credit directly to the government is included in Norway’s central bank act with the express purpose of safeguarding this distinction.

It lowers the real interest rate and contributes towards further increasing demand. When confidence in the inflation target is weak and inflation expectations are not well anchored, the result thus becomes larger fluctuations in the economy. We went through such a development in Sweden in the 1970s and 1980s, when the fixed exchange rate did not act as a sufficiently strong nominal anchor, which in turn resulted in recurrent cost crises and devaluations. The reason that debaters do not address the problems of abandoning the inflation target could, of course, be that they consider that the process of inflation has changed so much that central banks simply no longer can reach their inflation targets. This seems after all to be quite a common view in the debate. This would imply that it is not meaningful to set up targets for inflation, as it is determined by factors outside monetary policy. However, this is an assumption that, were it correct, would actually turn much of what is considered accepted within economic science on its head. Economic paradigms do change every now and again, of course. But, at a minimum, one may argue that quite a heavy burden of proof lies on those claiming it is no longer possible to choose an inflation target. Among other things, they would have to disprove Milton Friedman’s thesis that inflation is basically a monetary phenomenon. 17 Having said this, in practice, it is probably more of a gradual scale than a binary zero-one solution.
During this crisis, the precipitate rise in liquidity premia and fall in asset prices may have called into question the viability of many banks had their assets been fair-valued. Consider again the banking book of UK banks on a mark to market basis. Chart 7 shows the loss of value on this book, which would have peaked at over £ billion during the early months of 2009. The total capital resources of UK banks at that time were around £ billion. In other words, the UK banking system in aggregate would have been technically insolvent on a mark to market basis. The recent recovery in asset prices has been almost as remarkable as the preceding fall. It has meant UK banks were back in the black within a matter of months.   “Liquidity and fire-sales”  The act of marking to market may itself have a bearing on asset price dynamics. This arises because of its potential effects on banks’ behaviour. If swings in perceived solvency cause banks to sell assets, these fire-sales may themselves add to downward pressures on asset prices. Under mark to market, these pressures are felt by all institutions, not just the seller. In effect, fire-sales by one firm have negative externalities for all others. And as other banks adjust their own balance sheets in response, there is a risk the downward dynamic is perpetuated. 18  8  Khan (2009).

Moving on to the second aspect – the importance of using SARON more actively in financial products and developing a liquid, SARON-based yield curve: To date, Libor has been widely used in financial products, however market participants are now working hard on transitioning to new, SARON-based products. These include derivatives, especially interest rate swaps, which can be used to hedge against changes in interest rates. 1 A SARON-based interest rate swap market was set up back in 2017. Trading activity in this market remains low, however it is expected to pick up once SARON becomes more widely used in cash products (such as loans, mortgages and capital market instruments) and investment products. The SARON1  An interest rate swap allows a contractually agreed, fixed interest rate (e.g. for a period of five years) to be exchanged periodically for a floating interest rate. The floating interest rate portion of the contract is determined by a reference rate. Page 2/3  Berne, 13 June 2019 Andréa M. Maechler  News conference  based yield curve will then be able to take over the role of the current, Libor-based yield curve. Yield curves are important benchmarks for market participants and serve as the basis for pricing medium and long-term financial products. And, finally, the third aspect – how should interest payments be calculated for a period of three months, for example? Libor provided a three-month rate which could, among other things, be directly applied to the calculation of interest payments on money market mortgages.
Slower growth in domestic demand and production will curb growth in demand for labour. When the effects of changes in interest rates reach the labour market, wage growth will be affected. Increases in labour costs will in turn have an effect on inflation. 3  BIS Review 67/2000  A more direct channel between changes in interest rates and price and cost inflation is to be found in the exchange rate. Under normal circumstances, a higher interest rate strengthens the exchange rate, resulting in lower prices for imported goods (which account for approximately 40% of the goods and services in the consumer price index). The change in the exchange rate will also affect earnings in the internationally exposed sector and enterprises’ ability to raise wages. The relationship between interest rates and the exchange rate is not stable. We have seen cases of the exchange rate falling after a rise in interest rates when enterprises and financial operators assumed that the interest rate rise would seriously undermine the basis for economic growth. On the other hand, a low interest rate which fuels higher inflation will cause the krone to fluctuate considerably. Nevertheless, as long as monetary policy has a stabilising effect on the inflation outlook, we will generally be able to assume that raising interest rates strengthens the krone and that lowering interest rates weakens it.

The accumulation of capital in the Petroleum Fund serves as a channel for distributing oil revenues among generations and contributes to stable government finances in the long term. The larger the Petroleum Fund is, the less dependent we will be on petroleum revenues in the future. The Petroleum Fund shall also serve as a buffer against short-term fluctuations in oil revenues. As large portions of the revenues from oil activities accrue to the state, fluctuations in oil prices and oil revenues will primarily result in changes in allocations to the Petroleum Fund. Since all of the capital in the Petroleum Fund is invested abroad, such changes will in principle not influence the level of activity in the economy. This makes the Norwegian economy more robust to fluctuations in oil prices and thus less dependent on oil, even in the short run. 11  BIS Review 67/2000  Chart 11 Petroleum activity in 2000  We may say that oil revenues enter the Norwegian economy through an external and internal circular flow. The distinction between the external and internal circular flow is important for exchange rate stability. This means, among other things, that short-term changes in oil prices shall not influence the orientation of economic policy. If the distinction between the two circular flows were to break down, and the use of oil revenues were to fluctuate more in step with oil prices, we would have an unstable economy, and hence an unstable exchange rate.
Zeti Akhtar Aziz: Enhancing the soundness of the banking sector The New Capital Accord Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Risk Management Seminar on the New Capital Accord (Basel II), Kuala Lumpur, 15 April 2004. *  *  *  Distinguished guests, Ladies and Gentlemen, It is my pleasure to welcome you to the Risk Management seminar on Basel II organized for the directors and senior management of banking institutions. The objective of this seminar is to promote greater understanding of the impending changes to the international capital adequacy regulation. Given the importance of the subject and its implications on the banking industry, it is important for the industry to understand the intentions and the challenges arising from these changes so that the necessary action may be taken in a manner in which the benefits to be derived from it can be maximised. While there has been global acceptance of the broad principles of the new accord, differing implementation approaches are being adopted by different countries. I will take the opportunity to discuss the new Accord from our perspective and the approach that will be adopted for Malaysia. This seminar will provide you with the opportunity to engage in discussions on the issues concerning the new Accord. Philosophy and objective of capital regulation A well functioning and efficient banking sector is vital to the economic growth process. The banking institutions perform the important intermediation function of mobilizing funds to finance productive activities.

But before I do, I will give the standard Fed disclaimer that the views I express today are mine alone, and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or others in the Federal Reserve System. Inflation's Disparate Impact The FOMC's price stability objective is for inflation to average 2 percent over the longer run, as measured by the personal consumption expenditures price index. 1 In the three decades before the pandemic, this inflation rate averaged almost exactly 2 percent. But that changed dramatically last year, when inflation suddenly soared. It has reached fourdecade highs in recent months, and now stands at over 6 percent. High inflation spares no one. It makes it more expensive to feed families, heat homes, and pay rents. While everyone feels the pain, not everyone is affected equally. Those who can least afford the essentials-like food, gas, and housing-suffer the most. Inflation also has a disparate impact across ethnic groups. Economists at the New York Fed found that since 2021, Black and Hispanic households have faced higher inflation than the national average-and Hispanic families have been affected the most. 2 This is largely because on average, Hispanic households spend a larger share of their budgets on items most affected by the recent high inflation. 1/5  BIS - Central bankers' speeches  The Inflation Onion The sources of high inflation are many and complex, and they stretch across the globe. Nearly all economies are experiencing unusually high rates of inflation.
These differences in strategies are reflected in different action plans, some aimed at growth in loans or commissions, others at streamlining costs through various means, including digitalisation or externalisation. The options are varied and should be adapted to the actual circumstances of each bank. Conclusions In conclusion, my address has focused on the importance of reflecting on the banking business model as a cornerstone for being able to achieve a sustainable level of profitability over time. I have stressed certain elements central to this reflection, such as detailed knowledge of the reality of the business, a price-setting policy that reflects the risk and cost of each product, a strategy geared to strengthening capital and reducing non-productive assets, sound governance and an individualised and tailor-made strategic approach. 7/8  Banks are preparing for the future and the new times ahead, although nobody knows for sure what this will be like. What is clear is that only banks that are proactive and better prepared from the strategic standpoint will be capable of exerting influence over their profitability and sustainability over time. Thank you for your attention. 8/8

Furthermore, when stable exchange rates are replaced by flexible, volatile and, in all likelihood, depreciating ones, the demand for hedging in the more volatile environment and under liberalized arrangements may drive exchange rates to such debilitating levels that many would regret the lack of resolve in pursuing sensible policies and in the defence of stable exchange rates in the first place. There is no doubt that confidence in the stability of a few Asian currencies has now been badly undermined and rebuilding it may take more than just time. Nevertheless, as the very productive Asian economies find their feet again, they will soon be on their way with renewed vigour. 23. For Hong Kong, as very much a service-oriented economy, any erosion of competitiveness, as a result of our currency holding stable against the US dollar while others have fallen, is likely to be mild. Our economy is not particularly sensitive to exchange rate changes. The IMF forecast for Hong Kong’s growth rate next year is 4.25%, only a shade below our trend growth rate of 5%, representing a healthy consolidation in the circumstances. BIS Review 115/1997
But then they receive everything that is left. The advantage with prioritising the payments in this way is that one can sell the tranches to investors with different risk appetites. Those with a high risk appetite can buy the higher risk tranches, while more cautious investors, such as insurance companies and pension funds, can buy the tranches that are assessed to have the lowest credit risk. But although there are advantages to packaging together securitised loans in a CDO, there are also disadvantages. One disadvantage is that it is expensive, time-consuming and difficult to assess the credit risk in the different tranches. The underlying assets may be of a heterogeneous nature. Moreover, there are products where a CDO is repackaged and in turn included as a component in another CDO, which will of course make it more difficult to gain an overview of the risk content. The credit risk in the structured products is often assessed  BIS Review 136/2007  1  by the credit rating agencies, which also rate the different tranches, at least the more senior ones. The credit rating agencies thus play an important role with regard to the structured products. Pricing is another problem. Tailor-made products are not in general subject to regular trading and price listings are rare. One is often reduced to employing mathematical models, which are based on estimated default frequencies for various credits, given the development previously observed.

”Conduits” are the more common of the two and account for almost 80 per cent of the outstanding stock of asset-backed commercial paper. An SIV has a more advanced construction than a “conduit”. It is usually highly leveraged, 15-20 times the equity capital. It is not necessarily tied to a bank and the financing is largely for longer durations. But the need for financing in the short-term money market is nevertheless crucial. Although the investment companies in themselves are not banks, they conduct bank-like operations; they have their own balance sheets and names and are in principal independent of the banks. But if an investment company is for some reason unable to issue new corporate certificates when the old ones fall due for payment, the bank guarantees the ability to pay, wholly or partly. The guarantees may be of a formal nature, where the bank commits itself to redeeming the certificate if the investment company is unable to do so. But a guarantee can also be of a more informal nature and based on the bank being unwilling to abandon its investment company in order to protect its name and reputation. Whichever is the case, it means that if an investment company linked to a bank faces financing difficulties, the problem is referred back to the bank, which must provide the company with sufficient liquidity for a short period of time. This is to some extent reminiscent of the situation during the Swedish financial company crisis, which started the 1990s bank crisis.
A middle ground between a single currency or single monetary standard such as Bretton Woods, and fully floating exchange rates, would be intervention bands and controlled exchange rates between, for instance, the euro and the dollar. However, this would partly suffer from the same problems as a fully fixed regime. Furthermore, we would encounter the same dilemma that characterised all semi-fixed, or fixed but adjustable exchange rate arrangements, which failed so miserably over the past ten years. The list is long, from Sweden’s and the ERM countries’ crisis at the beginning of the 1990s, to the crises in Mexico, Asia, Russia and Brazil during the subsequent decade. All displayed some similar characteristics, which a controlled exchange rate between the dollar and euro would also be unable to escape. At some point in time, the market becomes aware that the political gains of avoiding painful real adjustments are probably less than the costs and loss of prestige associated with an exchange rate adjustment. Once the market realises this, speculation follows and the costs of defending the exchange rate mount, at the same as the potential loss of prestige from adjustment diminishes. In the end, an exchange rate adjustment becomes economically unavoidable and politically acceptable regardless of whether politicians wanted it. Of course, such a spiral is not possible with a single currency where adjustments must occur without devaluation and where speculation of this kind is impossible. Do not these arguments lead us to conclude that China too should let its currency float?

So, one reason for the krona’s current recovery is that the markets are once again focusing on Sweden’s long-term, stable macroeconomic policy, which has  2  BIS Review 47/2003  remained in place regardless of EMU. This policy includes the Riksbank’s inflation target and a budgetary framework that has the support of all parliamentary parties. Thus, Sweden will remain outside the euro for the time being, together with its fellow EU countries Denmark and the UK. But as early as May next year the EU will have ten new Member States and around 100 million new inhabitants, the vast majority from Central and Eastern Europe. Of these ten, nine have expressed their desire to join monetary union as soon as they meet the convergence criteria. Contrary to many people’s expectations, several of these countries appear fully capable of meeting the criteria in the next few years. After a decade of reforms leading from planned economy to market economy, inflation and budget deficits have been cut and debt levels have been kept in check in a number of the smaller countries, while for the bigger countries, such as Poland, Hungary and the Czech Republic, budget consolidation is their last remaining obstacle. So it is not unrealistic that a handful of new countries could introduce the euro as early as 2006-2007, or in any case 2-3 years later.
23  Various observers have pointed out a number of factors that help to explain the financial crisis: Low key rates in all major countries over several years in the early 2000s, conflicts of interest in important financial institutions such as credit rating agencies and considerable economic differences are just a few of them. 8  BIS central bankers’ speeches  In many ways, central banks are the response the authorities could apply when crises arose. Central banks were established to exercise control over the monetary system, enabling states to issue banknotes people could trust and providing banks with a bank for their own deposits and from which they could, in the last resort, borrow from in times of crisis. Confidence in the monetary unit is the mainstay of our financial system. The following may serve as an illustration: It costs 50 øre to produce a banknote. For every 100-krone banknote Norges Bank issues, we apparently create wealth of NOK 99.50 – out of thin air. But people still sleep soundly in their beds – including those with money under their mattresses – because we are confident that the money can be exchanged for real goods. It is, of course, tempting to take advantage of this confidence. History is full of kings and governments who have attempted to do just that. In 1716, the Scottish economist John Law established a bank that soon assumed the role as the first central bank of France.

Although history never repeats itself exactly, some key features recur: one recurring feature is that boom periods are confused with an increase in the economy’s growth capacity. Good times are mistakenly interpreted as perfectly normal.15 When times are good, it is difficult to gain acceptance for setting aside funds. There are always unsolved tasks in a society, and these tasks attract attention. In the 1930s, Ragnar Frisch understood that it is difficult for politicians to recognise good times at the time. He believed that it was the task of economists to ascertain the cyclical situation.16 When the crisis arrived in 2007, government finances were in disorder. Deficits and debt rose to such high levels that it was difficult for many countries to borrow money. When credibility is lost and lenders draw the line, Keynesian policy has reached its limit. These countries now have no other choice than to cut welfare schemes and public spending. The political fury we are now witnessing in Athens, Madrid and Rome is being directed at today’s political leaders. Perhaps their rage should be directed at those who were in positions of responsibility in the good times, instead of at those who are now left with the washing-up. We have furthered our understanding of economics over the many decades since Keynes, Frisch and others laid the basis of modern economics after the 1930s crisis. Theories have become more advanced, and methods and calculations far more complex. We have reams of regulations.