samchain/econo-pairs-v1 huggingface dataset:
While monetary policy was strict in the sense that both nominal and real interest rates were kept at a high  2  BIS Review 21/2006  level to protect the krona, at the same time credit regulations were abolished in 1985, which led to a huge credit boom that increased demand and pushed up property prices. The excessive price and wage increases led to Sweden's cost level once again deteriorating substantially in relation to other countries. At the end of the 1980s, relative costs per produced unit had increased to the level prevailing prior to the devaluations at the beginning of the 1980s and we once again had problems with the twin deficits in the current account and public finances. The problems were aggravated by an international economic downswing at the beginning of the 1990s and by the fact that household saving increased considerably after the tax reform implemented at the beginning of the 1990s. The property bubble that had arisen in the wake of the deregulation of the credit market burst, which resulted in the whole of the Swedish banking system being on the verge of bankruptcy in 1992. Large currency flows in autumn 1992 made fiscal policy spending cuts necessary and led to a powerful defence of the Swedish krona by the Riksbank with interest rates creeping up in stages. In the end, it was necessary to give up. The krona was allowed to float, leaving the peg against the ecu in November 1992, and it depreciated by 20-25 per cent.

The calculations indicated that industrial production and investment would increase, public finances would improve, the current account deficit would disappear, employment would increase and unemployment would be kept down. After Kjell-Olof Feldt had made contact with the Nordic finance ministers and central bank governors, as well as the German central bank governor, the size of the devaluation was altered to 16 per cent and the planned pegging of the krona to the German D-mark was postponed indefinitely. I had reason to return to these calculations later on during the 1980s and I could observe that they were pretty accurate on most points, except with regard to price and wage developments. I had assumed that inflation and wage increases would adjust downwards to the international level. For devaluation to be successful, price and wage developments must be kept down after the devaluation. However, this was not the case. Sweden had an inflation rate much higher than that in Germany every year of the 1980s. Economic policy was not sufficiently strict during the 1980s to keep down price and wage increases after the devaluations in 1981 and 1982. Although public sector finances improved substantially, this was primarily due to automatic improvements resulting from a number of years of good growth.
The increase in the number of banks, branches and their agencies, as well as the growing number of bank employees have caused the coverage of the population to improve significantly. Thus, the number of inhabitants per bank, banking unit and per bank employee has decreased considerably. 2  BIS Review 101/2006  Table 2: Coverage with banking services 2003  2004  2005  2,236  2,816  3,479  161  188  250  149  176  217  13.9  15  13.9  bank  206,851  194,971  184,410  banking unit  20,815  16,593  12,539  bank employee  1,388  1,108  901  Number of employees Number of branches, agencies Number of employees per: bank banking unit 1  Number of inhabitants per :  Table 3: The expansion of the banks’ network by the end of the 9-month period of 2006Banks Nof No. Banks No. of Branches No.

In May and June we saw what could happen if expectations of a less expansionary monetary policy course become widespread in the market. At that time, the announcement by the US Federal Reserve of a possible reduction in its bond purchase programme caused share markets to plunge temporarily. The wave of selling did not recede until the beginning of July, when the Federal Reserve, the European Central Bank and the Bank of England reassured markets that key rates would remain at very low levels until the recovery of the individual economies was on a firm foundation. On bond markets, interest rates continued rising in June and July. Since then, they have largely moved sideways. This applies to US, UK, German and Swiss government bonds, in particular. Until the beginning of September, yields on ten-year Confederation bonds rose to almost 1.2%. They are currently at around 1%, which means that they have increased by about half a percent year-on-year. Government bonds in the emerging economies were particularly strongly affected by the rise in interest rates, since the expectation of an impending monetary policy normalisation in the US led to significant capital outflows from these countries. By contrast, risk premia on government bonds for the peripheral euro area economies did not increase very much. Moreover, these risk premia have fallen again in the meantime so that returns on government bonds in the peripheral economies are now in fact lower than at the beginning of the year.
It may be that Sweden, Denmark and the UK will have to discuss their future relationship to the euro at the same time as the euro area expands to include half a dozen new countries. The Central and Eastern European countries will also have to weigh the long-term gains of adopting the euro against the risks of asymmetric shocks. The advantages for these countries are perhaps even clearer than for Sweden. Particularly substantial gains may arise from increased financial integration through the euro. Thanks to the fact that banks from EU countries have acquired large sections of the banking system in eastern Europe, the financial sector there has been able to evolve relatively quickly. But the new Member States’ financial systems are still rather undeveloped, with credits in relation to GDP of between one-eighth and one-quarter of that in the euro area. Sweden’s Baltic neighbour Estonia is one example of how currency integration can help the financial system to evolve. The Estonians have pegged their currency to the euro for over a decade and are keen to quickly take the step into monetary union. Their banking system is owned by Swedish-Nordic banks and credit volumes are growing by 20-30 per cent a year - most of which is denominated in euro. In some countries, the euro can also help to cement the macroeconomic discipline that is still a relatively new phenomenon there.

The experiences of many countries, including Sweden at the beginning of the 1990s, show that the foreign exchange market should not be deregulated until the banking system has been reformed. Could China not revalue then and adapt the exchange rate to its trade surplus without floating its currency? In my opinion, this would not be such a wise decision either. It is wrong to attribute China’s trade surplus with the US to the currency issue. The surplus is probably best explained by the cost advantages enjoyed by Chinese producers in labour-intensive goods compared with the US. China’s trade surplus can be seen as a natural consequence of the division of labour within the Pacific region where China’s position as supplier and sub-supplier of low value-added goods is highly favourable for US productivity. This is a segment in which the Chinese compete with very few US producers, which is why an exchange rate adjustment would have only a marginal impact. In actual fact, an excessively large one-off adjustment would be required to have any effect at all on the US-Chinese trade balance. Such a large correction would in turn give rise to problems for Chinese trade elsewhere. It is with the US that China enjoys a large surplus, while the trade balance is close to zero or is negative with many other areas, including the euro area. This picture is confirmed by many fundamental analyses of an equilibrium exchange rate for China, which come relatively close to China’s fixed exchange rate today.
The credibility provided by the inflation target is a prerequisite for monetary policy to be able to respond so aggressively to the fallout from the crisis. And with inflation being above target almost consistently over this period, it is hard to argue that monetary policymakers have somehow been fixated by inflation. But the forward guidance provided by the MPC makes that support explicit. The primary objective of monetary policy remains the 2% inflation target. The sanctity of that objective is guarded by the two price stability knockouts. But subject to those knockouts and the knockout pertaining to financial stability, our guidance clearly signals the Committee’s intention to maintain a highly stimulatory stance of policy until the economy returns to something closer to normality. Abstracting from the precise details of the thresholds and knockouts, the message to businesses and families should be clear. The MPC intends to keep interest rates low until we have seen a sustained period of strong growth, rising incomes and higher employment, as long as that does not pose risks to either price stability or financial stability. To be clear: that is no different to the approach underlying our policy over the past five years. But forward guidance provides a framework and a language in which that intention can be made plain. A closely related issue is the policy trade-off currently faced by the MPC.

Spencer Dale: Inflation targeting and the Monetary Policy Committee’s forward guidance Speech by Mr Spencer Dale, Executive Director, Monetary Policy, and Chief Economist of the Bank of England, at the International Journal of Central Banking Annual Conference, “Inflation targeting and its discontents”, Warsaw, 6 September 2013. *  *  *  A central theme of this conference has been to highlight potential shortcomings of inflation targeting and to consider potential alternatives. I believe that the traumatic events in the UK economy over the past five years have, in fact, strengthened the case for inflation targeting. The credibility of the inflation target has played a crucial role in anchoring inflation expectations over the past five years, a period in which inflation has been consistently above target. That credibility has been vital in giving the Monetary Policy Committee (MPC) the flexibility to loosen monetary policy aggressively in order to support growth and jobs. But while it has not constrained the MPC’s freedom to act in support of the economy, the inflation target, on its own, has proved less well suited to addressing some of the exceptional communications challenges posed by the sustained combination of weak growth and elevated inflation. I would highlight two in particular: the need to make clear the central role that monetary policy has played in supporting output and employment; and the need to provide guidance about the Committee’s view of the appropriate trade-off between bringing inflation back to target and stimulating the recovery.
The changes that the Central Bank implemented at the beginning of March concerning repurchase agreements had two components. On the one hand, the definition of the collateral that qualified for repurchase agreements was widened to include again, after an intermission, all market listed government guaranteed securities and central bank certificates of deposit. The purpose of this change is to level the positions of the various government securities, as varying positions in regard to liquidity transactions with the Central Bank can influence their relative market yields. It is clear that such limitations do not exist among Iceland’s neighbours. In addition, the stock of outstanding Treasury bills has shrunk in the recent period, which has caused a shortage of these bills for deposit banks to use in their repurchase agreements with the Central Bank. The other change is, as mentioned before, that the practice of offering repurchase agreements on tap has been abolished and replaced by a weekly auction of the agreements, as is done in many industrial countries. The Central Bank can at its discretion choose to auction reverse repurchase agreements instead of straightforward repurchase agreements. Neither of these changes alters the course of monetary policy. However, they did have the effect of reversing the rise in money market rates that had occurred in January and February, when the interbank rate rose to 8.3 percent because of the shortage of Treasury bills on the market.

Only if the krona were abolished and replaced as legal tender by the euro, in a similar manner as Panama and Liberia have done with respect to the dollar, would exchange rate risk and the associated interest rate risk premium disappear. However, it is good for thought that no country with its economy in good order has chosen this path. Seignorage then accrues to another country or group of countries and all influence over monetary policy is surrendered. Nor is it clear that such a path would be acceptable to the European Central Bank. Participation in the Monetary Union would be a preferable option to adopting the unions currency unilaterally as this would allow for a share in seignorage and give the possibility for influencing monetary policy decisions. This would, however, require membership of the European Union as I mentioned earlier and any decision in that regard of course concerns wider issues than only monetary and exchange rate arrangements. This is of course a very general analysis of the options we face, but nevertheless shows that the issue is more complicated than we are sometimes led to believe. All the alternative options have strengths and weaknesses. Also, future developments and what will actually be on offer are still in doubt. One reason is that the European Monetary Institute, the precursor of the European Central Bank, has not been empowered to discuss linkages with any non-member of the European Union. The task of preparing Monetary Union has been more than sufficient.
On the other hand, the uncertainty over developments in the labour market, lasting imbalances in savings and volatile stock market developments comprise a continued risk factor in the forecast. There are also signs that the industrial sectors in many other OECD countries are entering a phase of recovery. One particular risk factor in the developments is, in my opinion, that equity prices have been pushed up in the USA, given the economic situation. At the same time, the degree of indebtedness in the private sector remains relatively low. The low real interest rate entails risks for future developments in asset prices, particularly for the stock market. These risks need not be impending in the current situation, but the problems could become tangible in a couple of years’ time. This means that there is a risk that economic policy, which is very expansive in order to avoid a strong downward spiral, would postpone the adjustment of imbalances in the economy. Some parallels can be drawn with the events that took place after the crisis in 1987, when a financial bubble recurred. A further example of an asset bubble way back in time is what happened in the USA in 1927. At that time, the US central bank pursued an expansive monetary policy in order to stabilise the gold standard. This contributed to an over-valuation of assets and later to the crash in 1929.

As can be seen in the minutes of the Executive Board meeting on 7 February 2002, I entered a reservation against the decision to leave the interest rate unchanged. I would rather have seen an increase in the interest rate of 0.25 percentage points, which is not any severe tightening of policy, but should rather be seen as not stepping so hard on the gas. 6  BIS Review 13/2002
In Spain’s case, in a setting in which the state of alert affected the last two weeks of Q1, we witnessed the biggest-ever contraction in GDP historically in a single quarter, namely a quarter-on-quarter rate of 5.2%. This decline was one of the most pronounced in the euro area, and was in response to several circumstances. These included a relatively greater severity of the lockdown measures (given, too, the greater intensity of the pandemic) and the presence of certain structural factors in our economy that make it more vulnerable to a shock of these characteristics. The most significant factor here is perhaps the high weight of the tourism-related sectors, which have been particularly affected by the social distancing measures. The reduction in hours worked, estimated at 5% in Q1, was also the biggestever in the time series and highlights the marked impact of the various measures affecting movement on the labour market in the early stages of this crisis. Admittedly, the restrictions on movement were gradually eased as from early May. But the state of alert ran for much of Q2, whereby a notable increase in the decline in GDP and in employment in this period is to be expected. The latest Banco de España macroeconomic projections, published in June against a background of unusually high uncertainty, posted estimates of quarter-on-quarter declines in activity in a range between -16% and -21.8%. And the information since available tends to confirm that the decline in economic activity in Q2 as a whole will have been in this range.

According to the draft agreement, the legal spending commitments attached to the projects included in Next Generation EU shall be made, at the latest, by 31 December 2023, and the related payments will have to be made effective, at the latest, by end-2026. More specifically, 70% of the transfers should be committed during the 2021-2022 two-year period, with a country-based distribution factor that depends on the unemployment rate in 2015-2019, population and the country’s per capita income. The remaining 30% must be committed before end-2023, and the distribution factor will be adapted to incorporate more directly the heterogeneous impact of the health crisis. Thus, the unemployment rate will be replaced by a variable that will weight, in equal portions, the decline in GDP in 2020 and the cumulative decline in GDP in 2020-2021. In sum, the fund will enable, at least in part, a balance to be struck between the potential and real financial divergences among the European partners. This is because it will benefit from the positive externalities arising from joint action and it will serve to engineer a coordinated exit from the crisis, based on common budgetary instruments. The financing of the fund through Community debt will benefit from the favourable low-interest-rate environment and will prevent this new debt being assumed by Member States individually, under conditions which, in some cases, would be foreseeably more unfavourable than those 4  which are expected to be applied to this pooled instrument.
Under this regime, it is the investor who ultimately decides whether to purchase a product that entails risks higher than the risk profile generated through the suitability assessment. But in the process we expect a bank to take due care and diligence in protecting its customers’ interests. In this connection, it may be useful for me to refer to a recent disciplinary case handled by the HKMA to demonstrate what a bank should not do to its customers. This is what happened. A bank staff managed to sell an investment linked assurance scheme, or ILAS, product to a woman who had no prior investment experience. Her monthly income was less than $ and her total life savings was $ The product would require her to pay a premium of $ per year for a total of five years. In other words, the total premium would be $ million, which was four times her life savings or 18 times her annual income. When the customer found out, after the end of the first year, that her life savings had been wiped out through the payment of premium and that she needed to make the second annual premium payment of $ she not unnaturally wanted to get out of the investment. At that point she found out that, according to the investment terms, she would have to suffer an early termination penalty amounting to 30% of the value of her investment, which is roughly equivalent to her income for one year.

Second, a set of resolutionrelated reforms are intended to limit the consequences to the financial sector if a failure by such an institution still were to occur. Given the limited time on this panel, I will not review in detail the post-crisis comprehensive capital and liquidity framework that the Federal Reserve has put in place. However, from the perspective of addressing too big to fail, it is important to highlight the Federal Reserve rule finalized this year that imposes risk-based capital surcharges on the handful of U.S. global systemically important banking organizations (GSIBs). Under this framework, a GSIB’s riskbased capital surcharge will reflect the degree to which its failure would impact the financial system. In effect, the risk-based capital surcharge confronts each U.S. GSIB with the choice to either reduce its systemic footprint or instead to hold more capital. The policy approach to too big to fail recognizes, of course, that we can reduce but cannot completely eliminate the possibility of a large financial institution’s failure. Therefore, a second aim of our post-crisis reforms has been to limit the adverse consequences that would result if a large financial institution were to fail. That is, large financial firms need to be capable of being successfully resolved without creating unacceptable collateral damage to the rest of the financial system and to the economy.
I had a unique perspective on this event, witnessing its start when I was a finance minister and seeing it continue to unfold during my time as IMF Managing Director. This crisis produced the second lesson I would like to highlight, which was possibly easier to see when one was looking from the outside. It was clear early on that our monetary union was lacking a full set of institutions and needed to be strengthened. We became painfully aware that the euro area was particularly vulnerable to self-fulfilling panics. What became evident is that the perceived commitment of policymakers was a crucial variable in effective policymaking. Initially, we perhaps underestimated how important those perceptions are. It took time to realise that, in a period of high uncertainty, being seen as fully committed could shift financial markets between polar opposites – from working against us to working with us. That is why the crisis abated very quickly in 2012 when – within a few months – the Heads of State or Government agreed to launch the banking union and the ECB acted to remove unwarranted fears in financial markets. It became clear that our commitment to the euro was beyond doubt. The euro is, of course, irreversible. The lesson was also that, in times of crisis, the most important signal for policymakers is their determination to act. And this lesson was absolutely crucial when the pandemic hit us last year.

However, Romania had to choose between adjusting its external deficit by its own means or take foreign borrowings under unacceptable conditions. Romania adopted the former solution and subsequently signed an agreement with the IMF. Nevertheless, Standard&Poor’s, which had promptly downgraded Romania’s rating to one notch above a level which would have indicated external debt payment default – which had not occurred in the case of Romania – maintained this low rating for a long time, even after the crisis had been overcome band the country’s reserves had resumed growth. I reminisced this event that occurred ten years ago as I have been experiencing a particularly strong déjà-vu feeling during recent months. First came the bleak assessments of some foreign analysts, followed by the failed speculative attack against the RON. The next stage of the game was the downgrading of the sovereign rating to below investment grade, Romania being the only EU Member State in such a situation. Yesterday, I read another comment anticipating neither more nor less that Romania and Bulgaria risk a default on sovereign foreign debt payments even though most of the foreign debt stock is private.