samchain/econo-pairs-v1 huggingface dataset:
Macroprudential and monetary policy instruments must be coordinated The interaction between macroprudential policy and monetary policy instruments means that it will be necessary to coordinate their use. This is for three reasons. Firstly, there is a danger of the instruments conflicting if they are implemented in an uncoordinated manner by authorities with different objectives. This has been shown to lead to a “push-me, pull-you” problem in which monetary policy and macroprudential policy instruments are used more aggressively, in opposing directions, leading to a worse outcome than if the instruments had been coordinated. 10 Secondly, in most cases, monetary policy and macroprudential policy instruments should reinforce, not conflict with, each other. But it will still be necessary to monitor and understand the overlap between the instruments to ensure optimal policy. Thirdly, in some extreme situations, the use of instruments usually prescribed for monetary or macroprudential policy will be insufficient to meet their respective policy objectives. In such situations, monetary and macroprudential policy instruments will be required to work in tandem to meet the policy objectives. Close coordination will be needed to guide use of the tools in these circumstances, as the distinction between the objectives of the instruments will be blurred.

The macroprudential mandate is likely to be broad in scope, as system-wide risks can arise in a wide range of ways and from a wide range of sources. Consequently, the range of macroprudential instruments must be equally broad in scope. Discussions of macroprudential instruments usually emphasise the need for instruments that operate in two dimensions: the time or cyclical dimension, in which instruments are designed to counteract financial multipliers/ accelerators that amplify cycles; and the cross-sectional dimension, in which instruments are required to isolate or dampen the transmission of problems across the financial system. While it is important that the macroprudential agency has control over instruments to prevent and mitigate system-wide risks, it is not essential for the agency to implement these instruments itself. The macroprudential toolkit is likely to include instruments used for other policy objectives and not implemented by the macroprudential agency (for example, capital requirements and insurance premiums). Overlap between policy areas The overlap between different policy areas is one of the major challenges to the design of effective governance arrangements. Responsibility for using instruments that can be used for multiple policy objectives is more complicated and policy-setting is more difficult as policymakers must consider the unintended impact of their instruments on other policy objectives and the unintended impact of other policy-makers’ instruments on their own policy objective. The use of an instrument for one objective may conflict with or amplify the effect of instruments used to achieve a different policy objective.
Although restructuring will be a gradual process and may lie some years ahead, Norway may find that sustaining growth and keeping unemployment low in the coming years might become a challenge more on a par with that facing other economies today. The economic policy framework matters. Fiscal policy follows the fiscal rule, which aims to ensure a sustainable level of petroleum revenue spending over the long term. In the event of major aggregate demand shocks, fiscal policy, in line with the fiscal rule, can be used to alleviate the situation in the short term, as evidenced during the financial crisis. But an imbalance arising from a cost level that is too high and weak competitiveness cannot in the long term be addressed by means of an expansionary fiscal policy. This approach could, quite to the contrary, amplify the problem by crowding out businesses. The fiscal policy stance can affect the growth capacity of the economy. Government regulation and various features of the tax system can influence corporate decisions with regard to localisation, investment and technology. Other measures can affect the labour force and the functioning of the labour market. Supply-side mechanisms are complex and interlinked in ways that we do not fully understand. Nonetheless, an effective supply-side policy is probably the most important contribution we can make to strengthening the growth capacity of the economy.

The level of prices rose more than twentyfold in the period from 1806 to 18132, and in 1813 the currency was devalued by almost 90 percent. The first national assembly at Eidsvoll was attended by representatives of a nation in deprivation. For the 112 sworn representatives, popularly known as the men of Eidsvoll, who took their places as the Constituent Assembly in spring 1814, the atmosphere was nonetheless full of hope for freedom and a better future. Several of them had spent time abroad and had been influenced by the Enlightenment philosophers and by the American and French revolutions. The Norwegian Constitution was inspired by the thoughts and ideas they brought home with them. Absolute monarchy under the Danish king was to be replaced by the sovereignty of the people and the separation of powers. Institutions with clearly distinguished roles would prevent the arbitrary use of power and foster confidence. This evening we are gathered in one such institution. In the discussion at Eidsvoll, Christian Magnus Falsen, a key member of the Constituent Assembly, said that no state can exist without a well functioning monetary system. Another prominent member of the Assembly, Count Wedel Jarlsberg, insisted that the nation must have its own bank. The people’s elected representatives took responsibility for the monetary system, as stated in Article 75 of the Constitution: «It devolves upon the Storting to supervise the monetary affairs of the Realm».
Developments beyond the forecast horizon The uncertainty in the forecasts increases the further ahead they look, but despite this it can be interesting to look beyond the two-year forecast horizon in the main scenario. Economic developments during the past decade have been characterised by considerable free resources following the crisis at the end of the 1990s. That is not the case today, and will be even less the case in two years’ time, if the economic upturn continues as expected. This changes the focus of economic policy. A decisive factor for economic growth will be the development of production capacity, as I have mentioned earlier. It is production capacity that governs the development in demand that is compatible with price stability. Here there are some worrying tendencies, which I have touched upon earlier. The labour supply in Sweden risks developing less favourably beyond the forecast horizon as a result of demographical changes. Shorter working hours would have the same effect. On the other hand, measures may be taken to increase the supply of labour and thereby affect developments in the opposite direction. This effect could be obtained by, for instance, lower absence due to sickness. It is clear that the way the labour market functions will play a decisive role for economic growth both in the coming two years and beyond the forecast horizon. An important issue for Sweden in the near future is whether we shall take part in the third stage of EMU.

The decline in the average working hours over the past year is partly due to the economic downturn, as overtime has fallen. However, there also appear to be structural factors, such as a rising level of absence due to sickness and central agreements on shorter working hours, behind the decline. This indicates that the reduction in the labour supply could be at least partly of a more lasting nature. The decline in productivity during 2001 was limited in comparison with the declines in 1977, 1980 and 1990. Greater openness towards the world around us, a higher level of education during the 1990s and certain improvements in competitive pressure indicate that productivity will continue to be higher than in the 1970s and 1980s. However, this also presupposes that productivity in the information and telecommunications sector will return to a good level. There are also other risks: Inflation rose more than expected last spring, which was only partly due to price increases of a more temporary nature. The rest was primarily due to wage developments in the services industries. When employment begins to rise once again, while the labour market is strained, there is a risk that the new central wage agreements signed over the coming years will be affected by the fact that others have previously received high wage increases. To summarise: low inflation and consolidated central government finances have meant that there was room for manoeuvre to meet the economic downturn.
2 Financial stability has great significance for monetary policy There is no doubt that financial stability has considerable significance for monetary policy. Monetary policy largely acts via the financial markets and if these function poorly, monetary policy will have less effect on the economy and on inflation. Problems in the banks can also lead to problems in granting credit in general in the economy and thus to lower demand and lower inflationary pressure. But the effects on unemployment, growth and other aspects of the economy can be substantial, even if this does not extend to a full-scale financial crisis. If imbalances linked to credit-granting and asset prices build up that are unsustainable in the long run, there is a risk that the economic downswings will be deeper and more prolonged. 3 Given the links between the areas, there are arguments in favour of monetary policy taking into account risks linked to financial imbalances. This is actually nothing new. Such arguments were put forward even before the financial crisis, although the debate then concerned “bubbles” on the stock market or property market. Some said that monetary policy should react to such sharp rises in asset prices, over and above the impact the upturns have on the prospects for inflation and economic activity.

The feeling one gets is that the starting point for the analysis is often: “Assume that the world had looked different than it does now – that is, the inflation targets had been higher”. Then, one observes, developments would probably have been more favourable than they actually were. But in this case the challenge mainly concerns how the transition from one world to the other will be attained. Setting an inflation target for the first time is one thing, but changing a target that has become established is quite different. If one is to change the level of an inflation target, I believe the easiest and most efficient way would be to do so in a relatively normal situation – when inflation is not too far from the original target and the economy is not in a crisis or otherwise in a difficult situation. If, for example, one raises the inflation target in a situation where inflation is much higher than the target, there is a risk that this will be perceived as giving in and taking the easy way out and that one will be expected to continue doing this the next time there is a problem. There is a corresponding risk if one lowers the target when inflation is undershooting the target by a long way, even if there are of course limits as to how low one can set the target. Sooner or later expectations would probably adjust to the new target, but the adjustment period could prove costly.
How do I think policy should balance these divergent risks? How should these risks affect my views about how to follow the FOMC strategy of pursuing a balanced approach to achieving our policy goals? In my mind, current circumstances and a weighing of alternative risks mean that a balanced policy approach calls for being patient in reducing accommodation – that is, being patient about when we first increase the federal funds rate and being patient about setting the pace of rate increases once we have begun to move. Let me explain how I get there. Proceed cautiously in normalizing policy To say the least, conducting monetary policy at the ZLB has been a difficult experience that we all want to avoid repeating unnecessarily. In the winter of 2009, with the unemployment rate soaring to double digits, the Fed would have very much liked to lower the nominal federal funds rate an additional 300 basis points; but we couldn’t because the rate was already at zero. Faced with a pressing need to provide additional accommodation, we were forced to turn to innovative, but controversial, unconventional monetary policies. These policies have been extremely helpful. But there is no denying that they were second-best options; the ZLB had made lowering the fed funds rate, which is our first-best interest rate tool, infeasible. Everyone will welcome a return to more normal times and a reliance on the traditional policy framework of adjustments to the federal funds rate.

Government influence also directed bank lending into uneconomic projects and non-viable companies. This government involvement lent credence to the view that regional banks were effectively government guaranteed, which made it easier for these banks to borrow in the global interbank market. This provided the fuel for the irresponsible lending which took place. Hong Kong did not suffer from these structural and systemic weaknesses. But it is the case that imbalances had emerged in the economy, and this became particularly evident during 1997 as confidence grew that the Handover would proceed smoothly - as indeed it did. This was reflected in soaring residential property prices - up by an average of 48% during the year to October 1997 and a record level for the Hang Seng Index of 16,820 in August 1997. The boom in asset values was to a large extent financed by the banks. The sharp escalation in asset prices and in bank lending was clearly unsustainable. A downward adjustment would have been necessary and would have happened sooner or later. All that was required was an external shock to bring it about. This of course is precisely what happened in BIS Review 48/1998  -2-  the third week of October when the Hong Kong dollar came under speculative attack. The operation of our currency board system meant that the sales of the Hong Kong dollar depleted the clearing balances which the banks maintain with the HKMA for settlement purposes and the resultant shortage of liquidity caused interest rates to rise sharply.
First, appropriate intervention by supervisors vis-à-vis prime brokers to make sure that they ask for and get broad information from hedge funds and that they put in  12  Angeloni, Kashyap and Mojon, 2003  13  Noyer, 2006a  14  Noyer, 2007  4  BIS Review 42/2007  place comprehensive risk management of all hedge funds-related exposures is essential. Second, there may be scope for policy-makers to encourage appropriate organisation of infrastructure in order to improve the information available on the markets in which hedge funds operate. Third, a specific information system to be triggered in the event of a crisis could be established ex ante in order to ensure that relevant information on exposures and positions could be quickly gathered if necessary. -  At the macroeconomic level •  Increased financial asset holding resulting from financial innovation is likely to result in higher sensitivity of households to asset price booms and busts 15 . On the liabilities side of non-financial agents’ balance sheets, by facilitating the management of risk and easing liquidity constraints, financial innovation stimulates both the supply of and demand for credit, which may lead to higher leveraging and financial fragility. Note that both effects run counter to the result I mentioned at the start, i.e. that financial innovation tends to reduce growth volatility. Although this result may still hold true in normal circumstances, it may thus be reversed in specific ones, especially in stress situations.

•  Noyer C. (2007), “Hedge funds: what are the main issues?”, Financial Stability Review, Special issue on hedge funds, Banque de France, 10, pp 105-111, April. •  Rajan R.G. (2005), “Has Finance Made the World Riskier?”, European Financial Management, 12 (4), 499-533. •  Rajan R.G. and L. Zingales (1998), “Financial dependence and growth”, American Economic Review, 88, pp 559-586. •  Thornton D.L. (1994), “Financial Innovation, Deregulation and the “Credit View” of Monetary Policy”, Review of Federal Reserve Bank of Saint Louis Review, pp 31-49, JanuaryFebruary. •  Weber A. (2006), “Concluding Remarks”, Conference of the ECB-CFS Research Network on “Financial system modernisation and economic growth in Europe”, September 29. •  Weber A. (2007), “Hedge funds: a central bank perspective”, Financial Stability Review, Special issue on hedge funds, Banque de France,10, pp 101-168, April. 6  BIS Review 42/2007
BIS Review 58/2003  5

Both happened in a critical moment, only a few months before our accession to the ERM II, at the time when we were taking the last structural reform measures that we were obligated to implement. Additionally, the pandemic caused the EU focus to shift to other pressing issues. It is with great effort that we managed to overcome all these shocks and obstacles that spring. However, just as we thought that everything was under control, we were taken by another surprise: our project was once again subjected to a test. In the second half of 2021, due to an uneven post-pandemic recovery and supply chain disturbances, global inflation picked up and inflation rates became much more dispersed across EU member states. The unfavourable inflationary dynamics was further exacerbated by the Russian aggression of Ukraine in February 2022, which happened only a few months before Croatia's fulfilment of the nominal convergence criteria was to be assessed by the Convergence Report. Given that the Maastricht price stability criterion was a moving target, the situation was tense until April last year, when we finally received positive news that this criterion had also been fulfilled. Some might call this a final stroke of luck, but it was well-deserved, especially considering all the effort, commitment, organisational skills and discipline demonstrated throughout the life cycle of the euro project. Saying goodbye to the Croatian kuna was perhaps a more sentimental moment for me than for other citizens.
The period where inflation has been below the target has gradually become longer and longer. Even the more stable underlying inflation measure, where both interest-rate effects and volatile energy prices are excluded, has been below 2 per cent since January 2010 (see Figure 2). According to the Riksbank’s forecast, it is expected to reach this level again in autumn 2016, provided that monetary policy is very expansionary. This means nearly seven years below the target, at least five of which have been clearly below it. 9  Se for example Williams (2009), Blanchard et al. (2010), Calmfors (2013), Ball (2014), Krugman (2014), and Rosengren (2015). 10  See Côté (2014) and Kryvtsov and Mendes (2015). BIS central bankers’ speeches  5  Figure 2 Inflation has been low for a long time Annual percentage change  Note: CPIF is CPI with fixed mortgage rate. Sources: SCB and the Riksbank. Once inflation had undershot the target for a while, inflation expectations began to fall. Economic agents did not expect inflation to meet the target even five years ahead. In other words, a risk began to build up that the role of the inflation target as a benchmark for pricesetting and wage formation would begin to weaken – that the nominal anchor that has been an important part of the favourable developments in Sweden since the 1990s crisis would no longer hold.

If the credit risks disappear from the banks, where do they go? Today I intend to speak a little bit about the risks involved in credit derivatives, which so far mainly concern the international market. Here in Sweden the use of credit derivatives is still limited, although increasing. Then I intend to mention the opportunities I see in Sweden. But let me first run through how credit derivatives are used and how the market has developed in recent years. 1  How do credit derivatives work? A credit derivative is a financial contract between two parties. It insures the buyer of the contract against the credit suffering a credit event during a predetermined period. The credit event quite simply defines what the insurance covers, in roughly the same way as the conditions in a normal home insurance. I shall return to this shortly. Take, for instance, a company like TeliaSonera. Then imagine a bank that has loaned money to this company. This may involve a lot of money as TeliaSonera is a large company. Although Telia’s ability to pay is good when the loan is taken, the bank is exposed to the risk that it may deteriorate in the long term. If the bank considers the credit risk to be too high, it may choose to "sell" part of it to another investor. Then the bank can use the credit derivatives market. For the bank, which in this case is the seller of credit risk, the credit derivative functions roughly like a normal insurance.
Among Iceland’s major trading partners, weighted output growth measured 0.8% in 2012, as opposed to 1.7% in 2011. To a degree, the capital controls have shielded the Icelandic financial system from the euro area crisis. The effects felt through external trade were unavoidable, however, and Iceland’s terms of trade deteriorated over the course of the year, while the import purchasing power of export revenues stagnated. This played a part in slowing down output growth, even though Iceland’s growth rate was much faster than in trading partner countries. According to preliminary figures from Statistics Iceland for 2012 as a whole, output growth measured 1.6% during the year, which is somewhat below the Central Bank’s February forecast of 2.2%. On the other hand, year-2011 growth figures have been revised upwards, from 2.6% to 2.9%. This is well in line with the Central Bank’s first forecast of GDP growth in 2011. It is not uncommon that output growth figures are revised upwards during upward cycles, when more detailed investment figures become available. It will be interesting to see how estimates of 2012 develop. Output growth in 2012 was driven by growth in private consumption and business investment, while other items, such as net trade and public consumption, made a slightly negative contribution. This is similar to the whole recovery phase in 2010–2012, where business investment and private consumption contributed to output growth more or less equally, with business investment holding a slight advantage.

The Home Affordable Refinance Program, or HARP, was set up to facilitate refinancing of high loan-to-value prime conforming mortgages. The announced goal of the HARP was to  13  We should want the cost of misrepresenting loans to be invariant to the state of the jobs market. 14  Risk retention will also apply to some forms of mortgages in future. 6  BIS central bankers’ speeches  refinance 3 million to 4 million mortgages. However, shortcomings with the original program mean that less than a million HARP refinancings have taken place. Legal risks discouraged lenders from participating more fully in HARP to date. Notably, if a lender refinanced a loan made by another company, it was liable for the underwriting associated with the original loan. The profit from refinancing was unattractive relative to the risk of being forced to repurchase the loan. Given this, lenders had little incentive to compete to refinance loans and this led to higher mortgage rates and less refinancing. Many of these issues have been addressed by recent revisions to HARP and related decisions by Fannie Mae, but more could and should be done. Remaining legal issues could be alleviated by harmonizing standards between Fannie and Freddie. I would like to see refinancing made broadly available on streamlined terms and with moderate fees to all prime conforming borrowers who are current on their payments. This could substantially increase the number of refinancings.