samchain/econo-pairs-v1 huggingface dataset:
But one should bear in mind that each situation is unique and must be dealt with on the basis of the conditions prevailing at that time. 2  BIS Review 119/2008  Worst case scenario One fundamental function of a central bank is the role as “lender of last resort”. If the Riksbank’s assessment is that financial stability is threatened, we have the possibility, in exceptional circumstances, to contribute liquidity to Swedish banks and other financial companies by granting liquidity assistance on special terms. However, this assumes that these institutions are sound and that they are under the supervision of Finansinspektionen, the Swedish Financial Supervisory Authority. Let us assume, for instance, that a bank that meets the requirements and thus is assessed as having assets that are greater than its liabilities, nevertheless experiences severe problems in financing and acquiring sufficient liquidity to meet its payments. I shall briefly explain how such a situation can arise. In general, the banks finance themselves by borrowing money in the short term and lending it out on a longer term basis. When the banks lend to individuals and companies it is often on long-term contracts, which means that the bank cannot get the money back earlier if this should prove necessary. On the other hand, when the bank receives deposits from individuals and companies, they usually have the possibility to withdraw the money whenever they wish. Also when the banks borrow money in the financial markets this is often as shortterm loans, that is with a short duration.

I would like to take the opportunity to answer the criticism against us that we care too much about the price of oil and food commodities in the world market when we make our monetary policy decisions. The reason given is that we cannot affect these prices with our monetary policy. Of course it is quite true that we cannot affect world market prices. But nor have we tried to stop the direct effects of the upturn in oil and commodity prices. If this had been our aim, the interest rate would have been much higher than it is now. Inflation is also much higher now than our target, because of the direct effects of higher commodity prices. The reason we have not tightened our monetary policy severely is out of consideration to the real economy, production and employment. However, what we are anxious to see is that the indirect effects of the increases in oil and food prices are not allowed to push up inflation more permanently. We conduct a flexible inflation-targeting policy. If shocks occur that mean inflation will deviate from the target, we can allow it to take some time to attain the inflation target. The normal time horizon is a couple of years, but sometimes it may be sooner and sometimes it may need to take a little longer. Weaker growth With regard to growth in Sweden and abroad, my views were more pessimistic than the assessment presented in the September Monetary Policy Update. Developments in the United States appeared particularly uncertain.
For instance, leverage levels in the financial sector remain very high. The current low interest rate environment is encouraging risky high-yield strategies; activity on these high-yield markets is sustained; innovations on the ETF market are raising questions and the commodity market is being financialised. The active management of these new complex instruments is thus likely to reach its limits, as happened with CDOs. The current challenge for central banks is two-fold: we need to improve our ability to monitor risks at a system-wide level; we also need to re-establish the moral hazard that the management of the crisis suspended. On their side, banks and market participants need to ensure that they improve their risk management autonomously in order to reduce this  4  BIS central bankers’ speeches  hazard, in the interests of their shareholders and depositors, but also of economic development as a whole. Thank you for your attention. BIS central bankers’ speeches  5

Other factors that have temporarily held down inflation, such as the earlier krona appreciation, the rapidly-intensifying competition in the food retail sector and price pressure on clothing resulting from the EU abolishing textile quotas, are effects that are likely to decrease over time. The fundamental factors are all in place; expansionary monetary and fiscal policy, strong growth in real wages, good underlying productivity growth and stable export demand, particularly from the United States and rapidly-growing emerging markets such as China and the countries in central and eastern Europe. Therefore, we should not become exclusively preoccupied by the current inflation rate. Instead we should keep the right perspective. When developments gradually approach the usual recovery pattern, the indications are that resource utilisation will increase and inflation will approach the target level. There has been concern that an interest rate cut would have a slight effect on consumption and investment, as interest rates are already low and lending is growing rapidly in a situation where housing loans can be obtained at just over 2.5 per cent interest. Companies also have good profits and ample liquidity. Meanwhile there is believed to be a risk that even lower interest rates would further push up house prices through cheaper housing loans. An interest rate cut could thus have a misdirected effect with the risk of future setbacks; little or no effect on achieving the inflation target but a strong impact on the demand for assets such as houses.
2  On aggregate, private consumption has been adjusting in tune with the reduction of liquid balances, a less dynamic labor market and more restrictive financial conditions for households. The composition of job creation has shifted from formal salaried workers to self-employed and informal wage earners. Overall, this has maintained a low rate of job creation for several months. In turn, the unemployment rate rose to 8.7% in the February-April quarter and real wages remain low, still affected by high inflation (figure 7). Credit access conditions have become more constrained for households, as reported by our firstquarter Bank Lending Survey. This survey also reports that demand for credit has tightened, in a context of high-interest rates and a growing financial burden, as we reported in our Financial Stability Report for the first half of this year. Investment remains weak, reflecting the performance of the macroeconomic scenario. During the first quarter, seasonally adjusted, gross fixed capital formation fell by -0.9% with respect to the previous period. This decline was seen both in construction & other works and in machinery & equipment, which posted quarterly variations of -0.2% and -1.9%, respectively. This is consistent with the weakness of construction, reflected in the activity data of the National Accounts, the Construction Activity Indicator (Imacon) and the decrease in capital imports since mid-2022 (figure 8). Turning to companies’ perceptions, they continue to evaluate the economic outlook negatively (IMCE).

While a clear consensus on the best way to capture these risks has yet to fully emerge, these are very active areas of risk modeling at banks, and this is clearly a frontier area in both the regulatory and consensus economic capital regimes. In this regard, an important question to ask is how well the current capital frameworks capture the possibility of extreme events, those far in the “tail” of the distribution. Stress testing can play an important role in addressing these concerns. Stress tests should allow institutions to assess likely losses under extreme market events, those that happen too rarely to be captured under traditional value-at-risk measures, but that could cause very significant losses to the institution should they occur. Institutions have long engaged in this kind of analysis for internal management purposes. Now, however, those at the forefront of risk management are assessing the adequacy of their value-at-risk results against stress losses and finding ways of integrating the results of stress testing into their capital frameworks. Indeed, an important aspect of our supervisory process includes critically assessing stress-testing regimes. More rigorous and comprehensive stress testing of large shocks across multiple markets, geographic regions and business lines is vital, particularly for systemically important institutions. In this context, we need to see more attention paid to risks to market liquidity, and the effects on market liquidity that could result from the exit of a major dealer.
In normal times my preference would naturally have been to look through such a development provided that it did not feed into medium-term expectations. Indeed, we had seen inflation fall into negative territory driven by oil prices in 2009, and we had not reacted because we were confident that it would be transitory. The conditions we faced in January this year, however, gave us no such comfort. Our analysis showed that the persistence of low inflation across a range of statistical metrics was higher than in 2009. Measures of core inflation were also less sticky. But for me what was decisive was the loosening in the anchoring of inflation expectations we were witnessing, even at maturities and at horizons that we would normally expect to be more resilient to short-term inflation dynamics. This was in stark contrast to 2009 where inflation expectations hardly moved, even at the short end. The public sector purchase programme It was in this context that we launched the third part of our response, the ultima ratio decision to purchase assets, including public ones, as a tool of monetary policy. It was absolutely crucial that we lifted and re-anchored inflation expectations and warded off these potential second round effects. This is not only because stable inflation expectations are vital for medium-term price stability. It is also because, with interest rates at the effective lower bound, any fall in inflation expectations implies a rise in real interest rates, counteracting the credit easing we were trying to engineer.

And they also signal that liquidity will keep expanding, which supports a flattening of the term structure and further supports the easing of real interest rates and the exchange rate. The effectiveness of these signalling effects is predicated on the implementation of our programme in full, as we have communicated – that is, we will maintain the pace and volume of our intervention until we see a sustained return of inflation towards a level below, but close to, 2 % over the medium-term. In all these ways, our asset purchase programme therefore represents a continuation and extension of our existing measures – it reinforces our credit easing and more generally the bank lending channel. In this sense, I share the view that “quantitative easing” is something of a misnomer. To be sure, the quantity dimension of large-scale asset purchases matters, but only insofar as it affects prices and hence credit conditions. At the same time, we have to clearly distinguish instruments and objectives. In extraordinary circumstances we may need new instruments to meet our traditional objective. But what anchors trust in the central bank is that our objective and strategy stay, constant – and this is even more important when monetary policy becomes more unconventional. For this reason, innovative ideas to change our strategy, such as targeting a price level, would in fact be counterproductive in the current environment. Out goes also the misguided idea to increase our definition of price stability.
Øystein Olsen: Ensuring financial stability in turbulent times Speech by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the Finance Norway conference, Oslo, 12 April 2011. The text below may differ from the actual presentation. This speech does not contain assessments of the economic situation or current interest rate setting. *  *  *  Introduction The experience of the past few years has clearly shown the cost of financial instability. The near seizure of the financial system in autumn 2008 gave rise to the most severe economic downturn of our time. There was a dramatic decline in international trade and in 2009 world GDP decreased for the first time in generations. Economic policy was used actively in most countries to curb the economic downturn. Substantial resources were deployed in the form of stimulus packages and measures to prevent financial market collapse. Nonetheless, unemployment in the OECD area rose by 15 million in the first year after the outbreak of the crisis. The downturn also led to a sharp fall in tax revenues. Budget deficits ballooned and government debt rose rapidly. Global economic growth has recovered, but the effects of the financial crisis are still evident and will continue to be for some time yet. Unemployment is still high and the current situation and prospects for several countries bear evidence of strained government finances.

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Furthermore, it is more difficult to force a change in the exchange rate peg through speculative attack, but the repercussions of a successful attack could also be much greater. As a result, it is extremely important that a currency board, like any other exchange rate peg, be supported by fiscal and economic policy. If fiscal policy is not consistent with the fixed exchange rate policy, the peg is likely to fail in the end, no matter how strong the formal commitment to it is. The main disadvantages of a currency board are that the central bank’s possibility of mitigating volatility in banking system liquidity is more limited, and the money supply fluctuates with the foreign exchange reserves. This could put excessive pressure on the domestic financial system and entails a risk to financial stability. The foreign exchange reserves must also be much larger than under a floating exchange rate regime. Most of the countries that have successfully used a currency board are small countries with close links to the anchor area or those planning to adopt the euro. There has been some discussion of the possibility of adopting another currency in Iceland (see Chapter 19). When a country adopts another currency unilaterally, the foreign exchange reserves are used to purchase banknotes and coin in the anchor currency, which is put into circulation instead of the domestic currency.

The main changes consisted in reducing banking credit risk associated with deposits in commercial banks maturing in or before one year. The reference composition for banking risk was reduced from 37% to 20%, while for sovereign risk it was raised from 63% to 80%. Furthermore, during this year the minimum risk rate for banks to be eligible was changed from A- to A, also restricting investments in banking institutions rated A and A+ to a maximum of 5% of the investment portfolio. In line with the new bank deposit policy, deposits maturing in the months of October and November will not be renewed, in order to comply with the newly defined ceilings before December. Regarding asset breakdown by maturity, 60% of resources in the internally managed portfolio are invested in short-term instruments, with average maturity of three months, and the remaining 40% is invested in long-term securities (mainly sovereign bonds) with a duration of 30 months. Thus, average duration for the overall portfolio is 13.9 months. The reference currency composition remains 59% in US dollars and 41% in euros. Despite turbulences in international financial markets, and considering that the biggest fraction of resources is invested in fixed-income sovereign instruments, the annualized return obtained from managing the Central Bank's international reserves in the first half of 2008 was 3.47% measured in foreign currency. 1 The differential return obtained with respect to the benchmark structure was 0.15%.
Small, open economies can be vulnerable to large capital movements when powerful instruments are deployed by large countries. A possible side-effect of balance sheet policy is that the private sector also takes longer to strengthen equity capital and reduce risk than it would otherwise have done. With the low price of capital, it costs little to postpone restructuring and put off debt repayment. Finally, confidence in economic policy may be affected. The dividing line between monetary and fiscal policy seems to be more blurred. Balance sheet policy may dampen the effects of market volatility on interest rates and give heavily indebted countries a breathing space and time to adjust. On the other hand, the measures may also reduce the incentive to carry out necessary fiscal tightening. In the euro area, different considerations are now being balanced in the new “Outright Monetary Transactions” (OMT) programme. Under this programme, the European Central Bank (ECB) may only purchase bonds from countries that have entered into a loan agreement under the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM) – which in turn is conditional on a commitment to fiscal tightening. Chart: Corporate borrowing rates One reason for the ECB’s decision to establish the OMT programme is the partial breakdown of the monetary policy transmission mechanism in the euro area economy. There are wide differences in interest rates facing banks and firms across Europe. Although the same key rates apply to all the euro area countries, average corporate borrowing rates differ widely from country to country.

8 An exit from the krone market may be tight when many investors seek to shift out of krone positions at the same time. This can trigger a considerable depreciation of the krone, as experienced in autumn 2008. On the other hand, Norwegian securities can be perceived as safe havens because the associated credit risk is perceived to be low. Experience has also shown that international turbulence can in periods lead to an appreciation of the krone. A krone that is too strong can over time result in inflation that is too low and growth that is too weak. In that case, monetary policy measures will be taken. In Norway, the key policy rate is the relevant instrument. We still have room for manoeuvre in interest rate setting – in both directions. Foreign exchange interventions are not in principle an instrument suited to influencing the krone exchange rate over a longer period. It would only be relevant should the krone exchange rate move significantly out of line with that deemed reasonable in relation to the underlying fundamentals of the Norwegian economy, and should developments at the same time threaten the credibility of the inflation target. In addition, the interest rate weapon must have already been exhausted. Over the past decade, inflation has been low and stable. This shows that monetary policy has functioned effectively. Transparency about the response pattern and key policy rate forecasts reinforce the impact of monetary policy.
Svein Gjedrem: Monetary policy in Norway Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), given at Norges Bank’s Conference on Monetary Policy 2006: Evaluating Monetary Policy, Oslo, 30 March 2006. The speech is based on Inflation Report 1/06 and previous speeches. The  Charts in pdf-format can be found on the Norges Bank’s website. *  *  *  1. Introduction The title of this conference is “Evaluating Monetary Policy”. The conference therefore gives me an opportunity to provide a background for the assessment of monetary policy in Norway. 2. Transparency and communication of monetary policy strategy In most industrial countries, monetary policy is oriented towards low and stable inflation. Low and stable inflation is the most important contribution monetary policy can make to sound economic developments. As a framework for organising and explaining monetary policy, inflation targeting is now common. In our country, inflation targeting was introduced in March 2001. As non-elected bodies, central banks are granted substantial autonomy in the execution of monetary policy. Here, as in many other countries, the political authorities have delegated monetary policy decision-making to the central bank. This means that it has instrument independence, that is, the Bank’s Executive Board sets the short-term interest rate. The Bank is also accountable to the political authorities.

Household consumption played a central role in this respect: this began to recover towards the end of 2003 in the wake of the general economic upturn and the rise in earnings. A good showing by the construction sector also contributed to higher demand for household equipment. In contrast to their counterparts in Germany, Swiss consumers remained relatively optimistic in 2004, and this helped to sustain the level of business activity. Where public-sector demand is concerned, the financial constraints imposed by the Confederation and cantons put a brake on the growth in spending in 2004. For the first time in several years, public-sector demand rose less quickly than the other components of domestic demand. In this initial phase in the economic cycle, the return of confidence would normally have triggered growth in investments aimed at adapting the means of production to future needs. But such an upsurge has so far been largely absent, both in Switzerland and in other European countries. Although the profitability of companies has improved, they have given priority to raising the utilisation of existing  BIS Review 30/2005  1  capacity rather than expansion or modernisation, as the latter are considered to entail substantially more risks. As a result, growth in capital spending was modest in 2004. This cautious approach by companies also affected the development of the labour market: contrary to expectations, unemployment fell only slightly in the past year.