samchain/econo-pairs-v1 huggingface dataset:
One challenge consists of further developing the technology and expertise gained in oil production and oil services. Costs have been brought down at many stages to strengthen competitiveness in response to lower oil prices. If we succeed in this endeavour, the oil industry will continue to be a pillar of the Norwegian economy for many decades ahead. The other challenge lies in paving the way for growth in other industries and replacing the revenue shortfall and jobs shed in the oil industry owing to lower activity levels. The groundwork is in place. In recent years, the Norwegian financial system has been strengthened. During a period of restructuring, it is crucial that banks are in a position to channel credit to projects and businesses that will generate new growth. We have more fiscal policy muscle than most countries, but it must be used sensibly. The social partners seem to understand the gravity of the situation and are prepared to do their share. Monetary policy can be geared to facilitate the necessary structural changes. Norges Bank is in its 200th year. As a central bank, we have a responsibility to promote economic stability. In addition, the Bank is responsible for managing Norway’s collective financial wealth. The responsibility we have been given cannot be taken for granted. It is a mission that must be merited. Under the parity policy of the 1920s, the economic downturn was amplified by the desire to return to parity. In hindsight, that policy was described as oneeyed.

For instance, during a press conference in 2015, when asked whether he was dovish like Janet Yellen or hawkish like Paul Volcker, he replied ‘My name is Raghuram Rajan and I do what I do’. Of course, the next day this James Bond-ish remark made headlines in the financial press. When his three-year tenure ended, inflation was near the five percent inflation target, thereby improving conditions for ordinary citizens. Interest paid by the government had been reduced and bonds with maturities up to forty years were being issued for the first time. The value of  Page 3/4  the rupee had stabilised, foreign exchange reserves were at a record high, and India was the world’s fastest growing major economy. The three pillars of society Let me finish by saying a few words about one of Raghu’s latest publications. Next to an impressive list of about 90 peer-reviewed papers on specific economic and financial topics, Raghu has also written four books with a broader perspective. In his book, The Third Pillar: How Markets and the State Leave the Community Behind, which was published this year, Raghu emphasises that society is supported by three pillars: the state, markets and the community. Society can prosper if it achieves the right balance between the three pillars. Raghu argues that today, these pillars are seriously out of balance. While states and markets have expanded their powers, communities have been left powerless in dealing with the consequences of technological change and globalisation. As a result, people turn towards populist politicians.
So when it comes to making assessments of what risks becoming a bubble, I believe that we must continue to make use of our experience combined with a dose of the sort of conclusion referred to in English-speaking circles as a “duck test”; if it looks like a duck, swims like a duck and quacks like a duck, then it probably is a duck. Of course what we are talking about here is much more difficult to identify than a duck. But if there are sufficiently strong indications that developments are untenable, then there is a good probability that this is the case. And if this is expected to affect inflation and developments in the real economy, I consider the interest rate to be a possible weapon if others are not available or not sufficient – if not to prevent a bubble, then at least to tone down the bubble and its consequences. House prices today and in the coming period So what does this reasoning entail for my views on developments in house prices and lending today? Firstly, the crisis has meant that the repo rate has long been adjusted to try to alleviate the effects of the financial crisis on inflation, production and employment and to give support to the economic recovery.

I do not consider financial dominance to be a problem at present, but one cannot rule out the possibility of such a situation arising at some point in the future. We therefore need to continuously monitor developments and take measures to prevent this from happening. The Riksbank is responsible for inflation being stable, while responsibility for financial stability is shared between Finansinspektionen (the Swedish Financial Supervisory Authority), the Riksbank, the Swedish National Debt Office and the Ministry of Finance. The responsibility for macroprudential policy lies with Finansinspektionen. One of its aims is to limit financial imbalances, but monetary policy also has effects on financial imbalances. While macroprudential tools are particularly effective when one knows where risks in the financial system are building up, such as an excessive build-up of private debt. However, when interest rates are low for a long time, it can be difficult to know where in the system the main risks lie. In some situations it may therefore be reasonable to use the policy rate as a complement to macroprudential policy, as the policy rate has a broad impact on financial markets. There is an ongoing discussion in both academia and the central banking world about the extent to which monetary policy should counteract the build-up of risks in the financial system. This is an interesting and important discussion that I am following, but I do not want to belong to any particular camp in this discussion.
Figure 6 Inflation expectations in Chile  Deviation of inflation two years out from target (*)  (annual change, percent)  (percentage points)  4,2  1,2  3,9  1,0  4  3,6  0,8  0,8  3  3,3  0,6  0,6  3  3,0  0,4  2,7  0,2  2,4  0,0  2,1  -0,2  4 4  3  EES 1 year out  EES 2 years out  2 2 11  12  13  14  15  16  1,2 Peru  1,0  0,4  Mexico Colombia  0,2 Chile  0,0 -0,2  15  Apr. Jul. Oct.  16  (*) Difference between target inflation and inflation expected at December 2017 for Peru and Mexico, and at two years for Chile and Colombia. Sources: Central Bank of Chile and of respective countries. 10  BIS central bankers’ speeches  Figure 7 Real exchange rate (*) (index, 1986=100)  120  120 RER  110  110 2001-2015 average  100  100  90  90 1996-2015 average  80 70  80 70  89  91  93  95  97  99  01  03  05  07  09  11  13  15  (*) March 2016 figure includes information up to the 21st. Source: Central Bank of Chile.

In this context, the Central Bank has applied an expansionary monetary policy that is actually one of the most expansionary among comparable economies. Likewise, in the past few years we have made substantial revisions to our estimates of the Chilean economy’s potential growth. This is important, because a good diagnosis of mediumterm inflationary pressures requires a good measurement of the country’s capacity for growth. As we have explained before, the depreciation of our currency triggered an increase in tradable goods inflation. We expected this, since it is a well-established fact that in Chile, as in other emerging economies, the pass-through coefficient of the exchange rate to prices is BIS central bankers’ speeches  5  high. And not only did we expect it but we also hoped for it, as it is the way to generate the necessary change in relative prices when indexation renders the prices of nontradables relatively sticky on the downward side. In this context, it is important to understand that in our policy framework the main objective is to ensure that inflation will converge to the target within the policy horizon, which is usually two years. Of course this does not mean that we will overlook current inflation, but that we can tolerate deviations of inflation in the short term as long as we are convinced that such convergence within the above mentioned horizon is not at risk.
However, the solution to such problems does not lie in opposing the new risk management techniques or Basel II. They will help to promote financial stability. But there is a need for the banks to find ways of handling any effects that arise from an accentuation of cyclical fluctuations. It is important for economic development that credit and venture capital are available even when business activity is cyclically low - and perhaps somewhat less so when activity is peaking. Besides influencing how the banks handle their capital, the more advanced methods for risk management have led to the creation of new financial instruments. Two examples are securitisation and credit derivatives. This enables the banks to divest themselves of the credit risk in their loans by hedging in the credit derivatives market or by simply selling the risk through securitisation of the loans. The credit risks in the economy can then be spread over more agents. That is fundamentally favourable for financial stability and market efficiency. At the same time, the authorities must follow developments closely in order to understand where these credit risks end up. Their departure from the bank sector does not mean that they disappear from the economy; they turn up instead in a different form somewhere else, for instance in insurance companies or mutual funds. Do the new risk management facilities also mean that banking operations will take a different direction? Will banks try to slim their large illiquid balance sheets by selling off loans or securitising assets?

It is the system that provides payment services, converts savings into financial resources for investment and consumption, and contributes facilities for managing risk. In other words, the financial system performs a number of important social functions. If any of these functions were to be disrupted, the social costs could be very high. The damage inflicted by a disruption would probably be particularly great if it involved a vital component of the payment system. This is readily understood when one considers the enormous flow of payments. In Sweden, for instance, the payment system has a daily turnover of around SEK 500 billion, which means that the equivalent of our annual gross domestic product has to be handled in less than a week. Studies show, moreover, that in the past fifteen years there have been more than a dozen crises which cost the countries concerned at least 10 per cent of their GDP. So there are good reasons for state supervision of the financial system. The Riksbank has a function here in that the Riksdag (Sweden’s parliament) has made us accountable for promoting a safe and efficient payment system. A major ground for making us responsible for efficiency and stability is that, along with the banks, the Riksbank is a central player in the payment system and provides means of payments. The banks distribute notes and coins, keep transaction accounts linked to giro systems and operate credit card systems. The Riksbank in turn provides accounts in the payment system, RIX, that is available for large-value interbank payments.
It would operate with intra-day credit from its clearing bank, J.P. Morgan Chase, and overnight credit from the Federal Reserve. The Federal Reserve would provide credit that was fully secured by the collateral of the broker-dealer and this would continue for a period of time to enable the broker-dealer to wind down its trading book in an orderly manner – thereby mitigating to some degree the impact of the failure on financial markets and the economy. At the point in time when an orderly liquidation of the broker-dealer became practical, a petition would be filed for a receivership under the Securities Investor Protection Act. This became the contingency plan, although it was always subject to the Lehman board of directors deciding to file a Chapter 11 petition, a matter that was their responsibility and not ours. On September 15, Lehman’s board of directors elected to place the parent company in Chapter 11 while leaving Lehman’s brokerdealer open for business so it could wind down its operations. A look at the hypothetical alternative of lending to the Lehman holding company itself reveals that it was in fact not viable. By Monday, September 15, Lehman faced a total erosion of market confidence, and so the Federal Reserve would have been lending into a classic run. Had Lehman not filed for bankruptcy on September 15, but opened as if it were business as usual, creditors and counterparties would have rushed to protect their positions, using all legal remedies, causing the liquidity crisis to spread throughout Lehman’s organization.

Source: OECD  An article in the Monetary Policy Report published in July analyses the potential consequences of this.8 One risk in this connection is that the major Swedish banks largely fund their operations on the international capital markets and the level of confidence in the banks is decisive for their ability to get funding. A future economic downturn with a fall in housing prices in Sweden could therefore in the worst case be aggravated if international investors chose to reduce their exposure to the Swedish banking sector. The IMF recently repeated its warning about the high level of household debt in Sweden and the relatively large and concentrated banking sector and called for the quick implementation of the macroprudential policy instruments.9 Clearer boundaries affect the risk analysis However, clearer boundaries have been set for the work on preventing future crises since I became a member of the Executive Board. The government has proposed that Finansinspektionen should be responsible for macroprudential policy in Sweden and that a stability council should be formed in which Finansinspektionen, the National Debt Office, the government and the Riksbank should openly present their assessments and recommendations concerning financial stability. It is good that there is now a plan for clarifying the framework for financial stability. Macroprudential policy should also be able to use special instruments to manage developments in that part of the economy where there is a risk of imbalances.
It is a natural part of the economic debate that the Riksbank is being criticised, isn’t it? Wouldn’t it then be better to ignore the criticism and look ahead instead? No, I don’t think so. One important reason is that in the wake of the financial crisis there has been a discussion on the activities and tasks of central banks, what central banks should do and how they should do it. It is, of course, important that our debate on this here in Sweden is anchored in reality and based on how monetary policy has actually been conducted and what it has actually achieved. But meeting the criticism is important not just for the discussion here in Sweden. The debate on Swedish monetary policy also has an international interest and has been followed abroad, not least by other central banks.1 The reason is that a central issue in the international discussion has been to what extent central banks’ policy rates should be used as a complement to macroprudential policy, to counteract the build-up of financial imbalances, for instance, by trying to prevent lending and housing prices from rising too quickly.2 This is what is often called a policy of “leaning against the wind”, and I will hereafter use this expression for the sake of simplicity. Monetary policy in Sweden has in this context been regarded as particularly interesting, as the Riksbank is one of few central banks that, at least this far, has been explicit about taking such considerations into account in its policy-rate decisions.

“The Riksbank has aggressively, using a high repo rate, tried to prevent household debt from rising” The first part of the criticism can in turn be divided into different parts. For one thing, it claims that the Riksbank has leaned against the wind aggressively, and for another thing that household debt has been the main, if not the only, reason for this policy. I intend to comment on these points one by one. So how much has the Riksbank in practice leaned against the wind in recent years? My view here is clear. The monetary policy conducted after the crisis has for the most part been governed by traditional monetary policy motives, that is, the expected development of economic activity and inflation over the coming years. Giving consideration to the risks associated with the developments in household debt and housing prices has been part of our assessment, but a relatively minor part. The picture painted in the criticism has been quite different. Here the starting point is instead that the Riksbank’s concern over developments in household debt was the main motive for raising the repo rate after the financial crisis. Much of the criticism even seems to assume that household debt was the only motive for raising the repo rate.
Of course, the dialogue cannot be open-ended: at some point we will have to draw our conclusions and make our assessment. But those of you in IRB banks can expect us to show a different level of engagement, and a greater intensity of interest in, your risk management systems than we have previously shown. 2/5  Pillar 2 As I mentioned earlier, much of the focus on Basel II has been on IRB, and thus on Pillar 1. Now, credit risk remains, of course, one of the most fundamental risks in banking. However, we in the HKMA determined at an early stage in the Basel II process that it would be desirable to broaden the focus so as to bring into the equation the various "Pillar 2 risks." The case for this is, in our view, self-evident, as risks such as concentration risk, interest rate risk in the banking book, and liquidity funding risk can be every bit as devastating for the financial health of a bank as credit risk can be. In the run-up to final agreement on Basel II, therefore, we issued a series of guidance notes to give encouragement to AIs to upgrade their ability to manage these risks appropriately. We knew that for the coming few years AIs and their risk management specialists were likely to be preoccupied with Pillar 1 and thus we wanted to make sure that these "Pillar 2 risks" were adequately addressed as a priority, and not as an afterthought.

In this context, despite high volatility of consumer prices and exchange rates in trading partners, including the sharp decline in oil prices in the second half of 2008 (one of the main fundamentals in Algeria’s economy), the REER has remained near its equilibrium level and the external financial position remains comfortable. 4  BIS Review 168/2009
They are an important source of liquidity, both in periods of calm and stress. They add depth and breadth to our capital markets. By taking risks that would otherwise have remained on the balance sheets of other financial institutions, they provide an important source of risk transfer and diversification. They don’t perform these functions out of a sense of noble purpose, of course, but they are a critical part of what makes the U.S. financial markets work relatively well in absorbing shocks and in allocating savings to their highest return. These benefits are less conspicuous than the trauma that has been associated with hedge funds in periods of financial turmoil, but they are substantial. Hedge funds combine the classic mix of factors that have been associated with institutions at the center of past instances of stress in financial markets. They can be highly leveraged and can be vulnerable to pressure to liquidate assets quickly if they sustain significant losses. They can be active in complex instruments, and assessing the risks in their exposures is formidably challenging. Additionally, they are not subject to the public disclosure or regulatory reporting requirements that apply to a range of other financial institutions. And they operate largely outside the framework of other requirements established by regulatory authorities to protect the stability of the financial system. They are not unique in these attributes. Some of the same things are true of other types of financial institutions.

And they are also  2  BIS Review 70/2004  motivated by the view that greater disclosure would act as a desirable restraint on risk taking, and make it possible for market discipline to work more effectively. There have been several significant efforts to induce greater disclosure since 1998, notably by the President’s Working Group on Financial Markets, by a committee under the auspices of the BIS, and by private sector groups in the United States. These efforts have fallen short of their objectives, in significant part because of the difficulties in designing a disclosure regime that would provide meaningful information about potential systemic concerns, without undermining the ability of hedge funds function profitably and provide the important benefits that I mentioned earlier. Thus, while the potential benefits of meaningful progress on hedge fund disclosures could be material, we must also be realistic about the inherent difficulties associated with such a challenge. Even if additional efforts are mounted in this area, progress is not likely to come easily or quickly. The most constructive avenues for mitigating concerns about systemic stability lie in the areas of comprehensive risk management of potential exposures to hedge funds, the overall strength of capital and risk management in the major financial institutions, and the resilience of the market infrastructure. And we believe there is room for some further strengthening of market practice in these areas.
However, in the euro area such dilution is only 10%, owing to a greater national bias in asset holdings. The main private channel for risk dilution in the euro area at present is that of lending by the European banks that operate in different Member States. But this channel becomes unstable and may even shrink or disappear in situations of uncertainty owing to the link between sovereign States and their domestic banks. As is known, capital markets in Europe are less developed and less integrated than in the United States. Corporate financing on equity markets is very limited and, moreover, shows a strong national bias. In the United States, cross-border holdings of assets play a significant role in mitigating the shocks that affect a State. However, in Europe this mechanism is very limited. This is why it is crucial to complete the Capital Markets Union project so as to achieve greater depth and integration of European Union capital markets. That will allow for greater risk-sharing in private euro area channels and less reliance on bank financing, which will result in greater stability in the euro area. The aim of this project is to provide new financing sources for firms at a lower cost, and at the same time to attract more foreign investment towards the European Union. To achieve this, the European Commission proposed a plan of action in 2015 with over 30 measures to construct an integrated capital market in the European Union, to be completed by 2019.

Consistency has several sides •  Consistency across jurisdictions: it is vital as most players on OTC derivatives are global actors: we need to minimize the incentives for regulatory arbitrage;  •  Consistency with respect to the localization of market infrastructures, which should remain coherent with respect to the currencies traded: infrastructures should be under the direct reach of the Central Bank concerned by the systemic risk attached to the clearing of large positions in a given currency;  •  Consistency regarding the different types of players/counterparties: in order to prevent the move from regulated spheres to unregulated ones, we need to set up a framework where financial innovation, a key factor for economic growth, continue to develop in regulated spheres, and benefit from appropriate risk regulation. 2  BIS central bankers’ speeches  I will not dwell further on these topical issues, which are about to give rise to a fascinating discussion. It is my hope that we can collectively contribute to enlighten the policy debate. Let me now give the floor to our panelists. BIS central bankers’ speeches  3