samchain/econo-pairs-v1 huggingface dataset:
Low interest rates reduce borrowing costs, making it easier for indebted Norwegian firms and households to weather a demanding period. As the situation normalises, low interest rates will support a faster rebound in activity. This may reduce the risk of unemployment becoming entrenched at a high level. Chart: Activity will pick up gradually This chart shows the projections from the monetary policy meeting on 6 May and the projections published in early March. As we can see, the outlook for the Norwegian economy changed markedly in the course of a few weeks. Uncertainty about the economic outlook is unusually high. We have assumed that the containment measures will be gradually scaled back and that activity in the Norwegian economy picks up ahead. But it will nonetheless take time for activity to return to its pre-pandemic level. Chart: Unemployment is expected to decline Unemployment has risen to a very high level. Many of those now out of work have been furloughed temporarily. As containment measures are scaled back, many of these employees are likely to return to their jobs. Nevertheless, there is reason to expect that a number of businesses will have to close, with furloughed employees made redundant. Our assessment is therefore that it will take time for unemployment to fall back. Chart: Prospects for low wage growth High unemployment affects the prospects for wage growth. Unemployment is at a historically high level, profitability has declined substantially in much of the business sector and oil prices have fallen.

Øystein Olsen: The conduct of monetary policy Introductory statement by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the hearing before the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), Oslo, 19 May 2020. * * * Accompanying slides of the speech. Please note that the text below may differ from the actual presentation. When I appeared at the hearing before this Committee this time last year, the Norwegian economy was growing at a solid pace and the policy rate was on the rise. The policy rate was raised three times in 2019, from 0.75 percent to 1.50 percent. There was no longer any need for low interest rates to support economic activity. After several years of solid economic growth and falling unemployment, capacity utilisation was assessed to be somewhat above a normal level in 2019. Inflation was close to the 2 percent target. GDP growth slowed through autumn, and towards the end of 2019 the Norwegian economy was assessed to be close to the peak of the business cycle. There were prospects that the policy rate would remain close to 1.50 percent ahead, inflation would continue to be close to the inflation target and unemployment would remain low. We envisaged that growth would slow in the years ahead, partly as a result of weaker prospects for petroleum investment.
Now our focus must shift onto meeting the challenges of the year 2022, keeping the strategic context, namely the process of Bulgaria’s accession to the euro area, in which the banking sector will play a key role. In general, we expect that the macroeconomic environment in 2022 will be a little more favourable, but not less challenging. Although we are at the peak of another wave of the Covid crisis, we suppose that the negative health effects would subside and lessen over the year and, consequently, measures restricting the economic activity would be eased and become more flexible. Such a development would promote the improvement in the economic environment. On the other hand, banks will be faced with greater dynamics of the risks associated with the balance-sheet value of assets and liabilities and of returns. This dynamics will primarily depend on the development of the macroeconomic processes in Europe and, in a more global aspect, on the anticipated changes in the actions of the leading central banks. The withdrawal of the accommodative monetary policy, typical of recent years, will be visible in the reversal of the interest-rate cycle. These processes, which will be running globally with varying intensity and supported by different instruments of central banks, will largely determine the financial conditions in our country. In the context of the ongoing global macroeconomic processes, inflation will continue to receive special attention.

These include the following assumptions:   that a diversified portfolio of US real estate had little risk of falling in value;    that Triple-A rated securities based on mortgages were so well protected by the structure of the securitization that they posed little risk even if real estate prices did fall;    that the evolution of many financial institutions to an “originate to distribute” model of lending and securitization meant there was little risk exposure to declining real estate prices; and,    that there was little risk of a “run” on organizations like investment banks that relied on short-term, collateralized borrowing. 1  Of course, the views I express today are my own, not necessarily those of my colleagues on the Board of Governors or the Federal Open Market Committee (the FOMC). BIS central bankers’ speeches  1  Then to conclude I’d like to briefly mention what we can and must do to reduce the risks resulting from these sorts of financial myths, going forward. I believe that financial stability will, in the future, be better served as we implement some of the protections afforded by the Dodd-Frank Act; but I also suspect that doing better at protecting against various financial myths ultimately requires a cultural change. As a discipline, risk management has been too willing to accept that historical statistical relationships will be stable.
The downturn in the economy will affect not just monetary policy but fiscal policy too. That subject is for another occasion, but there is one point I do want to make tonight. The cost of supporting the banking system will inevitably raise the level of national debt. Managed properly, however, such a rise in national debt need not prove inflationary. Indeed, within a reasonable period it should be possible for the Government to reduce its stake in the banking system, for example by selling units in a Bank Reconstruction Fund, and repay the additional debt that had been issued. That is one difference between past increases in national debt in times of war and the increase now to pay for recapitalisation of the banking system which involves the acquisition of an asset. Let me take you back again to 1958. In the very first television interview given by a Governor of the Bank of England, Cameron Cobbold explained national debt to Robin Day on “Tell the People”, the highlight of ITN’s Sunday evening schedule fifty years ago. Here is the exchange: Cobbold:  The National Debt represents the sums of money which the Government have over the years borrowed from the public, mainly in this country and, to some extent, abroad. That is really the amount of expenditure which they have failed over the period to cover by revenue. Day:  Have we paid for World War II? Cobbold:  No. Day:  Have we paid for World War I? Cobbold:  No.

Why has the outlook deteriorated so quickly? The banking crisis dealt a severe blow to the availability of credit. Growth in secured lending to households fell to an annualised rate of 1.9% in the three months to August, its lowest level in more than a decade. The Bank of England’s survey of credit conditions suggests that the terms on which banks provide credit to companies have tightened even further. And, on some estimates, the supply of finance to the UK corporate sector has ground to a halt. This credit shock has come on top of a fall in real disposable incomes resulting from the rise in energy and food prices earlier in the year. So, taken together, the combination of a squeeze on real take-home pay and a decline in the availability of credit poses the risk of a sharp and prolonged slowdown in domestic demand. Indeed, it now seems likely that the UK economy is entering a recession. At the same time, consumer price inflation, our target measure, has risen from around the 2% target at the beginning of the year to a worryingly high rate of 5.2% in September. Oil and other commodity and food prices have all been rising very rapidly. In those circumstances, it was sensible to allow those price changes to be absorbed by movements in consumer prices. The alternative would have been an even sharper slowdown in the economy. Central banks in other countries also find themselves in a similar position.
Indeed in subsequent work (Cúrdia and Woodford, 2010), Woodford himself explores some of the ways that asset purchases might have traction, while Andrés, LópezSalido and Nelson (2004) provide a particular model that embeds imperfect substitutability arising from limited participation within a DSGE framework. Both the Federal Reserve and the Bank of England have bought longer-dated government and private assets, though with different emphases. 6 The Federal Reserve has purchased $ trillion (10 per cent of GDP) worth of Government Sponsored Enterprise debt and mortgage-backed securities guaranteed by them. In addition, the Federal Reserve has purchased $ billion (2 per cent of GDP) worth of US Treasuries. The Bank of England has bought nearly £ billion (14 per cent of GDP) of UK government bonds, together with a small quantity of corporate bonds. The Bank of Japan has also bought around ¥ trillion (3 per cent of GDP) of Japanese government bonds since the crisis deepened in late 2008; that is to be compared with ¥ trillion of purchases during their 2001–6 quantitative easing period. It is worth stressing that neither the Federal Reserve nor the Bank of England has assigned a key role to the expansion of central bank liabilities in the transmission mechanism associated with these asset purchases. In current circumstances, it is plausible to believe that commercial banks would be willing to hold the extra claims on the central bank as liquid assets at, or near, the existing vector of interest rates, rather than lending them on and driving down loan rates.

Their study suggests that the American  purchases of government securities did not affect the term structure and did not press down rates on other securities. 10 This interpretation is also in line with the Riksbank's communicated assessment that it would be possible to cut the policy rate to lower levels (see, for example, the Riksbank, 2016). 5 [30]  market, and the even lower rate on short government securities, which also led to a fall in the rate on longer-term government securities. Figure 3. Government bonds and covered bonds against expected policy rate Basis points  Note. Differential between rate on each bond and expected policy rate. Refers to bonds with a maturity of 5 years and an expected policy rate of 5 years ahead. Footnote 7 explains how the expected policy rate is calculated. Sources: Bloomberg, Macrobond, Refinitiv and the Riksbank. A relevant question is whether the Riksbank could have achieved the same effect by cutting the policy rate to −0.80 per cent instead of buying government bonds. I am unsure of the answer, but suspect that the effects would then have been different. Perhaps a lower policy rate had more clearly affected lending rates and also pressured the banks' profitability, but had similar effects on the exchange rate, something I will come back to in a moment.11 I also suspect that the Riksbank would have found it more difficult to communicate an even more negative policy rate.
At this point, global perceptions regarding the persistency of the increases in agricultural commodity prices in the medium term have become stronger. In this conjuncture, the analysis of the forecasts for world food prices and their impacts on domestic food prices bears great importance. In this respect, we included the summary of a particular study in the Inflation Report. The said study analyzes in detail the price developments observed in food products, determines their relative impacts by excluding the determinants of domestic food prices and accordingly makes assessments for the future. As stated in the study, the reinforcement of global perceptions regarding the persistency of the increases in agricultural commodity prices in the medium term indicates that upward risks on domestic food prices and especially on processed food prices will continue in the foreseeable future. In this framework, we revised our forecasts for medium term inflation to incorporate more conservative assumptions on food prices and we have raised our assumptions for food inflation to 13 percent for the year 2008 and 8 percent for the year 2009. These changes have led to upward revisions in our inflation forecasts, by about 1.2 points for 2008 and 1.1 points for 2009. The assumption on oil prices in the January Inflation Report stood at USD 85 per barrel. However, oil prices averaged about USD 100 in the first quarter of 2008. Considering the most recent developments, we have revised our assumption for oil prices to USD 105 per barrel.

Puerto Rico’s real, or inflation-adjusted Gross National Product has declined for the past four years and this has been accompanied by a sharp decline in the real income of Island residents. According to a monthly index of economic activity produced by the Government Development Bank for Puerto Rico, economic activity began to decline as far back as 2005. Although the index has been stable for the past several months and this may be a signal that the economic downturn on the Island may have ended, a solid recovery has yet to take hold and conditions remain challenging. The job market remains a trouble spot for the Island’s economy. Total employment fell by about 13 percent or roughly 140,000 jobs, between its peak back in 2005 and mid-2010. This is nearly double the 7 percent job loss on the mainland. For the past two years, employment has appeared to have bottomed out, but there has been little evidence of recovery. The Island’s unemployment rate has fallen by more than a percentage point over the past year, but this is not necessarily good news. The fall was largely the result of a fall in labor force participation. At 14.8 percent the unemployment rate remains unacceptably high. High unemployment and low labor force participation remain perhaps the biggest challenges to the Puerto Rico economy. Even in relatively prosperous times, the unemployment rate on the Island has been more than double the rate on the mainland.
In that light, it could in theory be cast as an enriched Taylor Rule, where a single policymaker “sets” both the risk-free policy rate and the credit spread on bank lending.24 This is, of course, an elegant and illuminating thought experiment. But can we do it? The “cyclical” macroprudential tools most discussed are variations of capital or liquidity or margin/haircut requirements. For now, I do not think we know enough about how they will work to control spreads and risk premia. And nor would we know precisely where we wanted to put these premia even if we could control them. This is not remotely a counsel of despair given the goal here: to choke off tail risk. Instead, I find it easier to think about the broad goals of macroprudential policy in terms of balance sheets. The regulatory reform Bill currently going through Parliament enjoins the Bank’s Financial Policy Committee to take heed of unsustainable levels of debt, leverage or credit growth, with the aim of ensuring that the financial system becomes and remains resilient. In other words, consistent with the theme of my remarks this evening, the FPC is to act upon the balance sheets of financial intermediaries, and indirectly to influence the balance sheets of other sectors of the economy. That means making judgments about incipient risk to the financial system from its own balance sheet and from borrowers.

It will make price comparisons across Europe more transparent and reduce transaction costs. In addition, the single currency area will enjoy price stability and sound public finances, which will lead to a high level of confidence and to low market interest rates. Last but not least, the euro will be a major international currency and this will facilitate international monetary cooperation. EMU is not only based on solid economic grounds. It is also a realistic economic process. EMU is based on convergence criteria which have to be met on a sustainable basis. The fulfilment of the convergence criteria is not only a legal condition for participating in EMU but, of course, corresponds to the sound policy management which is in the interest of all Member States. I am convinced that EMU will create an environment of stability I know how important the concept of stability is to the German people. This culture of stability, which explains to a large extent the economic success of your country, is shared by many Governments, central banks and citizens all over Europe, not least in France. I know that the German people have expressed some qualms about the disappearance of the Deutschemark and its replacement by the euro. But I will try to convince you that the euro will be as stable as the Deutschemark, as stable as the French franc today, for the sake of European economic prosperity and growth. Indeed, EMU will contribute to reinforcing stability in Europe. EMU will bring legal, fiscal and monetary stability.
So the message has to be not one like "we think it’s too risky to extend more credit to this sector” but instead more like “have you thought about the entire range of relevant risks in extending more credit and are your underwriting criteria in line with the riskier environment?" It’s important in publishing a financial stability report to present its findings as a range of possible outcomes which the private sector can then be encouraged to factor into its own risk management practices. Stress tests and scenario analysis provide the intellectual backbone for financial stability reports. Stress testing, in particular, has come a long way in recent years. The HKMA’s requirements on stress testing by banks have been in place for some time. Our Supervisory Policy Manual Module on Stress Testing, issued in early 2003, requires banks to have in place a stress-testing programme and to integrate stress testing into their risk management processes. For our own internal purposes we also conduct stress tests by applying a range of shocks to the supervisory data that is reported to us. These shocks take into account various adverse movements in banks’ liquidity, interest rate and market risk positions. However, the techniques of stress testing are rapidly evolving and are becoming increasingly more sophisticated. The first generation of stress tests simply took a variable and subjected it to a shock. It was basically just a matter of saying "let’s see what happens to capital if NPL’s go to 20 percent."

As you know, at the French President’s instigation, huge efforts are made to think about what has been termed a “new Bretton Woods”. Beyond these ambitious words, I do believe it to be useful to take a fresh look at the existing financial regulation. As a contribution to this debate, I would like to make two final sets of remarks. One has to do with the fluctuations of financial systems. The other concerns financial supervision. Financial systems that operate in the context of a developed market economy are, by nature, subject to cyclical forces. Some are a consequence of the business cycle. Credit activity is an obvious example, as credit demand is heavily influenced by economic activity. Others are from within financial systems. For instance, financial institutions’ equity position moves in line with asset prices especially in a fair value world where fluctuations result in capital gains or losses. The challenge for the authorities is to assess whether and to what extent regulations reinforce these dynamics and impact the entire financial system. With these questions in mind, work is being undertaken to examine the impact of prudential standards. It is also on this basis that the accounting adjustments that I mentioned earlier have been made. The need to develop a “macro-prudential” policy is now under debate. The general principle is straightforward: it consists in ensuring that supervision manages to limit risks for the stability not only of a particular institution, but also of the entire financial system. Its implementation, however, is complex.
So, we should gradually pay back our debt, but when an old debt falls due it is common to take a new loan to repay the old one, and if it can be reduced, it will be even better. What will we do when in 2015 an installment of 500 million euros falls due? The amount that will fall due in the public sector is around Euro 380 million. The rest is in the private sector. We have in mind those payments maturing in the next period. We have the potential, in both the foreign reserves and the economy, and certainly we expect that there will be new loans from abroad, which will repay part of the liabilities that will mature. 4  BIS central bankers’ speeches

2  Of course the Bank also relies on other data and data sources to meet our remit, for which we rely on many providers, and in particular the UK’s Office for National Statistics. 3  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  3  Plan to improve data collections In response to this challenge, as articulated by of our response3 to the Future of Finance report from 2019, we committed to review our data collections process, to find ways to reduce the burden on industry and to increase the effectiveness of the process. That led to a Discussion paper in 20204, and now, working with colleagues at the FCA, to our data collection transformation plan, published in February5. At the heart of the plan is our aspiration that the Bank gets the data it needs to fulfil its mission, at the lowest possible cost to industry. And we know that what data we need will change over time: the regulatory framework will evolve, with post-Brexit changes and the climate change agenda to name just two obvious developments that reporting will need to respond to. We need a reporting framework that can adapt to these new demands as smoothly, quickly and efficiently as possible. So how do we achieve that vision? We have identified three long-term reforms that we think can transform our data collections, and also bring wider benefits. I will mention the first two, before focusing on the third and most fundamental reform for the rest of these remarks.