samchain/econo-pairs-v1 huggingface dataset:
Moreover, while these feedback loops were important in setting into motion self-reinforcing losses and deleveraging, it was also the interactions amongst them, through joint exposure to common risk drivers and network linkages, that contributed to the multiplication of losses. Let me now turn to the second part of my talk which I will focus on the policy approach to deal with procyclicality. 2  BIS Review 160/2009  A good starting point to discuss policy is to recognize that business cycles are a normal feature of market economies and their existence – especially the interaction of the three cycles – can not be eliminated. The best we can do is to recognize the cycles and find ways to manage them in a way that markets continue to function without risking systemic instability. Reflecting this, it is clear that the objective of policy is to reduce the amplification of the cycles and their interactions by limiting the build-up of excesses. A common wisdom at this time is that policy should aim to limit the build-up of excess in the good time and ensure that the system has adequate capacity or buffers to manage the downturn in the bad time. But because the build-up of financial excess tends to be a result of many factors, some of which are not related to financial institutions, therefore, a broader approach to policy is needed so that many measures, both macro and micro, are used to help solve the problem.

Those who have operated for decades with a regime of low inflation, interest rates set by a strong independent central bank, and a strong and appreciating currency, may rightly think they have little to fear from the disciplines implied by EMU. Others will find EMU more bracing, particularly those whose inflation record has been poor, whose currency has undergone successive devaluations, and whose fiscal position is less than robust. For those countries, the EMU mission is potentially dangerous. Joining EMU would for them be to embark on a stiff mountain ascent, in weather which might be colder and less forgiving than one is used to. In those circumstances, the Boy Scout ensures that he is well prepared. He equips himself with waterproofs in the event of rain, with thick pullovers for the cold, with stout boots and, probably, a Swiss army knife in case it should prove necessary, at some point on the journey, to extract a stone from a horse’s hoof. He would also, I think, wish to ensure that he was fit, and had undertaken some strenuous rambles BIS Review 1/1997  -2-  in the foothills before making an assault on the mountain range. At this point you may be tired of hearing about Boy Scouts, and be ready to accuse me of the typical British trick of hiding behind down-home metaphors, and reducing topics of high seriousness to wry jokes. So let me be entirely clear about what I mean. We fully appreciate the great potential advantages of EMU for Europe’s economies.
The MPC’s central projection in the May Inflation Report is that the pace of output growth will slow. But a slowdown in economic growth is not, in itself, sufficient to hit the inflation target. The central issue for monetary policy is whether total BIS Review 53/1998  -2nominal demand will slow sufficiently quickly to prevent retail price inflation rising when the favourable effects of a high exchange rate and lower commodity prices wear off. The extent to which domestic demand growth slows down is crucial. At present, we are relying on a sharp deterioration in the trade balance to keep output growth down to levels that do not lead to rising inflationary pressure. But in the longer-run domestic demand growth must fall from its present rate of 3½ - 4% to something closer to trend. During 1997 as a whole, consumption grew by 5%. That growth rate is already moderating. And the MPC’s central projection is for a further slowdown in domestic demand during this year. That is likely to be brought about by a combination of the fiscal and monetary tightening that has been put in place over the past year or so. But there are real uncertainties. There is a risk that consumption may prove stubbornly buoyant. Real personal disposable income increased by 4.2% last year, and the ratio of net financial wealth of households to their income reached an all-time high of over 3. Those factors will support consumption.

The answer to the first question - what accounts for the divergence? - remains largely a mystery. The Bank’s preferred explanation, reached I have to admit via a process of elimination of other plausible explanations rather than by the existence of incontrovertible evidence, is that the divergence reflects the way in which house prices are “mix adjusted” to take account of the different characteristics of the houses bought and sold in any one month. Changes in the relative composition of the loan portfolios of the Halifax and the Nationwide over the last year or so are likely to have magnified this effect. To answer the second question - what is really happening to house prices? - the Bank has developed an alternative measure of house price inflation using data from the Land Registry. These data have the advantage that they cover nearly all housing transactions in England and Wales and so are more comprehensive than the data used by either the Halifax or the Nationwide. However, the Bank estimate is far from ideal. The published Land Registry data are not ‘mix adjusted’. And, although the Bank staff do apply a simple mix adjustment to take account of the basic type of property brought and sold and the county in which the property is located, it is less sophisticated than that used by either the Halifax or Nationwide. So I would not want to claim in any way that we at the Bank have found the true measure of house price inflation.
The regional network provides up-to-date information on the state of the Norwegian economy. Regular communication with local contacts in Norway’s business and community life provides us with information that supplements available official statistics. It also provides us with supplementary information about areas not covered by official statistical sources, and we learn which issues are of particular concern to enterprises. The network consists of companies, organisations and municipalities throughout Norway. In six rounds of talks each year, we engage in discussions with business and community leaders on financial developments in their enterprises and industries, with about 200 visits in each round. The selection of contacts represents the production side of the economy, both industry-wise and geographically. The network will comprise about 1000 contacts in the course of 2003, who will be contacted once or twice a year. Allforsk in Trondheim is responsible for the contact meetings in Central Norway. The industry structure in Central Norway is not substantially different from the rest of Norway. The public sector and some private service segments are important for employment in Central Norway. Primary industries are relatively more important in this part of the country. A large share of the workforce in Central Norway is employed in the public sector, in part because there is substantial research and development activity in this region. Focusing on knowledge is very important for the economy’s long-term production capacity, both for the nation and for the region.

However, it would in general have been possible to attain the inflation target in the nearer term by changing the interest rate more rapidly and more markedly. Hence, in Norges Bank’s conduct of monetary policy, emphasis is given to variability in both output and inflation. This is called flexible inflation targeting. The impact of monetary policy occurs with a lag. The current inflation rate does not therefore provide sufficient information to determine the level at which interest rates should be set now. Our analyses indicate that a substantial share of the effects of an interest rate change will occur within two years. The choice of a two-year horizon is thus based on striking a balance between inflation stability and output stability and on a perception of how interest rates influence the path of inflation and output. Activity in the economy moves in waves. This variability can be described by developments in what is known as the output gap. The output gap shows capacity utilisation in the mainland economy measured as the difference between actual GDP and the level indicated by trend growth, estimated at 2½ per cent in Norway. When the output gap is positive, the economy experiences an upturn, and a downturn when the output gap is negative. The output gap increases in value in an upturn and decreases in a downturn. For the Norwegian economy, the 1980s was a period of relatively wide fluctuations in activity, with periods of high inflation.
Dear bank managers, Let me now focus on a number of issues of concern to the banking industry and the Bank of Albania, which we believe should be addressed carefully during the next year. I would like to start with lending as the activity that has the main impact on the banks’ financial result. We find that lending growth rates decreased and credit quality continued to deteriorate, particularly for foreign-currency denominated loans. This performance is due to the fall of demand for loans; however, it also reflects a persistent reluctance of banks to lend. BIS central bankers’ speeches  1  This trend needs to be reversed by addressing problems related to the pace of lending and non-performing loans. The stable growth of deposits as well as the significant increase in non-residential investments show that banks have sufficient financial resources to lend at higher growth rates. These resources should be used to lend mainly to the private sector in Albania, acting in accordance with the established regulatory framework and your policies for investment diversification. On the other hand, efforts to address the non-performing loans should multiply, in terms of both prevention and addressing them properly. Your focus should be placed on the cautious process of loan restructuring, especially before such loans are transformed into non-performing loans. Further, you should act discreetly, but consistently, for the execution of collateral. We are all aware of the problems that exist in this area.

Hence the spectacular failure of models during the crisis: most, if not all, were constructed on the assumption that stable and predictable (usually normal) distribution probabilities could be used to describe the different states of the financial system and the economy. They collapsed when extreme events occurred with a frequency that no one ever thought would be possible. -  Uncertainty itself has huge consequences. As shown by Caballero and Krishnamurthy episodes of flight to quality and liquidity hoarding can be best explained by a regime shift, from an environment where risk can be measured and probabilities attached to different states of nature to a world of total uncertainty. Such regime changes are "tipping points" for the system as a whole, whose behavior is suddenly transformed. When they occur, agents respond by making decisions using “worst-case” scenarios and covering themselves against the possibility of their own demise. Doing so, they faced and created a collective action problem since the general rush for protection only aggravates the stress . This is the best way to rationalize and understand the liquidity and market freezes which occurred in August 2007 and, again, in September 2008. Facing such unprecedented reactions, policy makers may have wondered, "does the market know something that we don't". Actually, markets participants knew that they could not know. Because they were directly involved, they were aware it was impossible for them to fully master the complexity they had themselves created. And they acted accordingly.
A highly topical issue is, for instance, how developments in stock-markets, which are now of major importance for households, are likely to affect private consumption. Then, of course, forecasts can be wrong simply because something unexpected happens. The Gulf war and the Asian crisis are two examples but even smaller shocks can upset earlier predictions. The uncertainty that is inherent in decision-making is handled by not concentrating exclusively on one forecast for the economy and inflation. We also look at a spectrum of risks in the form of alternative scenarios. Last December, for instance, it was conceivable that economic activity would be weaker on account of a slowdown in the United States, with repercussions on the Swedish economy and inflation. At the same time, factors that might lead to higher inflation were the wage negotiations going wrong, the oil price rising and the exchange rate remaining weak. Since then the picture has shifted; weaker activity and a lower oil price have reduced the risks of inflation, though there are still certain upside risks from domestic inflation, future wage agreements and the weak exchange rate. We try to gauge the probability of each scenario and multiply this probability by the effects on inflation. In this way we arrive at a distribution of the probabilities in our assessment of inflation. The result serves as a foundation for monetary policy. A broad, comprehensive internal discussion Monetary policy is discussed by the Executive Board eight to ten times a year.

On four of these occasions the Board also adopts an Inflation Report. The meetings are scheduled about six months in advance both for the sake of our internal work and to inform those who follow this, for instance in the financial markets. Additional meetings can, of course, be arranged if necessary and we have said that they will be announced as soon as we have fixed a date. But we have now used this procedure for more than two years and that has not yet happened. The publication of the Riksbank’s quarterly Inflation Report is preceded by at least three discussions in the Executive Board: one or two to consider which general questions to include in the Report and our picture of future inflation, a meeting to finalise the text and a final meeting about a week later to set the  4  BIS Review 24/2001  repo rate. At the intervening Board meetings we simply compare new information with the picture in the most recent Inflation Report and decide the repo rate. Processes in compiling the Inflation Report Executive Board Discussion of synopsis. Assessment of inflation from staff. Discussion of the inflation situation.r  Decision made on inflation situation and text. Decision made on interest rate. Drafting committee Discussion of inflation situation. Discussion of interest rate decision. Material for each Board meeting is prepared by the Monetary Policy Department, where some forty economists are involved in various ways.
As regards complex structured products, we insist on imposing certain prohibitions, and both Anatoly Aksakov and Nikolay Zhuravlev have already said this. We have been discussing at the Federation Council that we need adequate laws in this area. The second problem is high hidden fees in consumer lending. In the conditions of low interest rates, banks, regrettably, also get involved in dubious practices striving to increase their interest income. Some banks ‘conceal’ the actual cost of a loan in insurance premiums and fees, while their amount may reach up to 50% of the loan cost. Often, people are unable to understand how much they would have to actually pay for a loan. Therefore, we are proposing a new approach to calculating the effective interest rate and hoping to be supported by legislative authorities on this issue as well. The new approach implies that the calculation will cover all additional services and insurance options approved by a borrower. As a result, a client will receive exhaustive information. Furthermore, as loans with a high effective interest rate involve higher capital requirements, banks will be less interested in granting so expensive loans. 5/7  BIS central bankers' speeches  The third topic is floating interest rates on retail loans. Banks want to be capable to efficiently manage their interest rate risk. Indeed, we appreciate that banks are careful in controlling their interest rate risk. This risk should never be underestimated. Nevertheless, we believe it inappropriate to fully transfer these risks to retail borrowers, especially on long-term loans.

Today, we can see that banks now have much more opportunities to manage their liquidity risks and the market has an adequate amount of highly liquid assets. Generally, such credit lines are granted when the market as a whole experiences a shortage of highly liquid assets, including, for instance, when we had to address the problem of small public debt. Currently, Russia’s public debt is still small, yet the market already has a sufficiently large amount of highly liquid assets. We are now resuming our plans for a progressive increase in the cost of irrevocable credit lines, but this process will be more gradual than we assumed before the pandemic. The fee of 0.15% on lines opened beginning on 1 April 2021 will remain effective until 1 October (previously we planned a rise from 1 April). After this date, the fee for using these lines will be raised to 0.5%. As to an individual limit for systemically important banks, we will reduce it over the next 12 months not by 30%, as we planned before, but only by 15%. The next topic I would like to address is preferential lending. As you know, President Putin has given the instruction to develop proposals on how preferential programmes should be implemented over the next period, until 2024. In this regard, I would like to present our view. We believe that preferential lending as an anti-crisis measure has been very efficient, yet it should be terminated in due time exactly as an anti-crisis measure.
But I think that we could go further in the direction of setting up minimum requirements for a crisis resolution framework for banks and other institutions covered by the financial safety net. Here one can draw some parallels to the work on fiscal policy frameworks, where the EU has come a long way in terms of coordination and codes of conduct in the event of macroeconomic crises. Where do we go from here? It is time to sum up. My message is that it is important for us to get in place an efficient regulatory framework for weak banks. A framework which combines the need to maintain stability and minimise costs to the public sector in the short term with the requirement for long-term market discipline. Returning to the health-care metaphor I started out with, we need to be able first of all to deal with the ordinary flus and broken bones of the financial system. But we also need to be prepared to deal with a more serious event. A possible outbreak of avian flu in the financial system. I have tried to outline the broad lines of such a framework.

But also the failure of a small bank will have wider effects, and even quite severe ones if it happens at a bad time. Given these wider effects of any bank failure, a number of special regulations to deal with the banks have been introduced over the years. As a result, the banking sector is now among the most regulated industries in our economies. The safety net includes financial supervision to monitor the risk taking of banks, with regulations on how much capital a bank needs to hold and how it should manage its risks. The banks’ owners enter into the business knowing that a serious breach of these regulations should lead to a revocation of the licence and the bank being closed. The safety net also includes the ability of the central bank to lend on special conditions to an illiquid but solvent bank when financial stability is at risk. In many countries, there is also an explicit guarantee to the small depositors, for which the banking sector itself is to take the responsibility. 2  BIS Review 62/2008  But this safety net, while reducing the risks involved, provides no full protection against failures. In particular, it does not extend to the case when the financial system is threatened in its entirety. And while the formal depositor protection should reduce the pressure from the public on the government to intervene in a bank failure, if the scheme is not properly set up, this expectation may prove unfounded.
The Riksbank needs to develop its work on how to take climate change into consideration in asset management. For instance, we need broader and deeper analysis of the issuers’ climate footprint. At the same time, one must remember that the foreign exchange reserves are unavoidably dominated by US and German government bonds. The Riksbank's contribution to a better development of the climate will therefore remain small. This is entirely natural. The important decisions on how climate change should be counteracted in Sweden are political and should be taken by the government and the Riksdag (parliament). 6 [7]  References Bank for International Settlements (2014), “Re-thinking the lender of last resort”, BIS Papers no 79, Monetary and Economic Department, September 2014. Bartsch, Elga, Jean Boivin, Stanley Fischer, Philipp Hildebrand (2019), “Dealing with the next downturn: From unconventional monetary policy to unprecedented policy coordination”, Macro and market perspectives, August 2019, BlackRock Investment Institute. Bernanke, Ben S. (2016), “What tools does the Fed have left? Part 3: Helicopter money”, blog post, Brookings. Bernanke, Ben S. (2019), “Monetary Policy in a New Era”, in Evolution or Revolution: Rethinking Macroeconomic Policy After the Great Recession, O. Blanchard and L. H. Summers (eds. ), Cambridge, The MIT Press. Cœuré, Benoît (2018), “Monetary Policy and Climate Change”, Speech at a conference on “Scaling up Green Finance: The Role of Central Banks”, Berlin, 8 November 2018. Eichenbaum, Martin S. (2019), “Rethinking Fiscal Policy in an Era of Low Interest Rates”, mimeo, Department of Economics, Northwestern University.

Later on, it is expected to gradually reduce to 20 billion US dollars by the end of 2022. I would like to emphasise once again that the fiscal rule mechanism smooths out the impact of a decrease in the current account balance on the domestic economic environment. However, it only pertains to oil price fluctuations. I would like to stress that we have slightly changed our approach to publishing forecast scenarios. The key rate decision relies on our baseline macroeconomic forecast and the analysis of uncertainties and risks for the baseline forecast. This is the reason why we will continue to publish the baseline scenario four times a year in our press releases and Monetary Policy Report following core meetings. We will release our supplementary scenarios – the high oil price scenario and the risk scenario that assumes that prices will plunge – in the same manner as the baseline scenario but once a year, in the Monetary Policy Guidelines. It is determined by the essence of these scenarios that remains almost unchanged across the meetings. The 2020–2022 Guidelines will be published on Monday. Winding up, I would like to comment on monetary policy prospects. 2/3  BIS central bankers' speeches  After the five years of the evolution from tight to moderately tight and then to neutral monetary policy, we have finally entered the key rate range we consider as a probable neutral interval.