samchain/econo-pairs-v1 huggingface dataset:
Compared with the anomalous situation at present, in which these flows are from the latter countries to the former ones, owing to the combined impact of the absorption exerted by the US economy and the exchange-rate policies in Asia, a smoother working of the world economy should channel surplus saving from the more mature economies to those where the return on capital is higher, as they are at a more incipient phase of development. It should be recalled that many of the achievements of the world economy in recent years, such as moving on to a high, inflation-free growth path and infusing the emerging areas with greater dynamism so as to allow them to achieve standards of living closer to those of the richer countries, are a direct or  2  BIS Review 45/2005  indirect consequence of growing worldwide integration. Globalisation has thus given most countries more fluid access to foreign markets while offering them incentives to concentrate on those industries in which their comparative advantage lies, and it has provided consumers with a wider range of products at more favourable prices. But it should not be forgotten that the rigidity of certain countries’ exchange-rate policies has ultimately triggered protectionist threats in others that see themselves as adversely affected. It is thus vital not to succumb to these protectionist temptations and to persevere with the liberalisation of international trade so that the trends which have allowed the world economy to achieve its recent favourable results may become entrenched.

The dollar’s fall in the period 2002-04 has not prompted a turnaround in the progressive widening of the US external deficit, either because, as is well known, depreciations tend only to correct currentaccount deficits with a lag, or because of the aforementioned asymmetry in the behaviour of the dollar against the main currencies and the fact that it has scarcely depreciated against the currencies of the countries that are running the counterpart surpluses. In turn, in a situation of large current-account surpluses and strong capital inflows, the Asian countries with de jure or de facto fixed exchange rates against the dollar continued to build up sizable international reserves. The need of the Asian central banks to place these reserves also partly explains another salient feature of economic developments in 2004: the maintenance of long-term interest rates at abnormally low levels. This is also largely attributable to the persistence of low inflation expectations, set against highly credible counter-inflationary monetary policies, and to the conditions of ample liquidity in which international financial markets operated. For much of the year, European bond yields were markedly synchronous with their US counterparts, despite the different position of the fundamentals of the two economies. From November, however, European rates declined, moving progressively away from US rates so that the yield spread between these areas widened considerably. This more recent development is consistent with the uncertainty over economic recovery in the euro area and the brighter outlook for the US economy.
The philosophy of prevention: assist banks to govern themselves In developing regulations and practices that help to prevent financial crisis, supervisors must not lose sight of the inherent self-interest that banks have to retain the public’s confidence by maintaining safe and sound operations. No responsible firm seeks to fail, and no responsible bank would willingly engage in practices that would cause the market to doubt its long-term viability. Consequently, our role as regulators is not to limit banks’ opportunities for growth and profit. Instead, it is to help banks to improve continuously their abilities to manage their businesses and their risks, thereby ensuring that, across the financial system, banks can maintain their financial health. At the same time, if we are to encourage responsible behavior, we must not create the illusion that we will rescue every institution that does not succeed. In this regard, you will recall Goethe’s view: "What government is the best? That which teaches us to govern ourselves." Similarly, one of the best ways for supervisors to carry out the duty of prevention is by developing regulatory structures that encourage banks and their managers to govern themselves and control their risks. I believe that three important elements in a supervisory structure can help to create such incentives and thereby promote stability. The first consists of the relatively new "risk-focused" approach to bank supervision that is being adopted in financial centers around the world. It embodies a forward-looking perspective focusing most heavily on the risks that each individual bank faces.

As far as I’m aware, French banks are sound, that’s what our banking supervision colleagues are telling us. And we need to make more out of Europe. We need more Europe, otherwise we won’t manage to solve our problems. 4/4  BIS central bankers' speeches
On the other hand, there is no reason to despair over the task of reducing public sector debt to 60% of GDP. The target Iceland has set for itself in any case, partly by aiming for a fiscal surplus, which is stricter than the 3% deficit set forth in the Maastricht criteria. Although Iceland’s gross public sector debt will be close to 100% of GDP as of end-2011, net debt is only about 40% of GDP. A large share of gross debt is due to large temporary foreign exchange reserves. Once uncertainty about the removal of capital controls is behind us, the sovereign credit rating improves, and the refinancing risk related to foreign debt diminishes, the need for large foreign exchange reserves will diminish as well. Furthermore, as a member of a currency union, a small country needs smaller foreign currency reserves than it needs to run an independent currency, which it must be prepared to defend, and possibly provide domestic financial institutions with foreign currency liquidity during times of distress. Participation in ERM II, which entails reciprocal responsibility for exchange rate stability, would reduce somewhat the need for large foreign exchange reserves relative to a unilateral fixed rate regime.

Established beliefs in efficient markets, asset price dynamics, and more, have all been called into question. Amid the flux in the global financial and economic landscape, Singapore also has its own challenges. Resource constraints mean that we have to restructure the economy to depend less on the labour force and more on productivity increases for growth. During this period of transition, important adjustments in domestic resource costs and consumer prices are taking place, alongside the usual cyclical developments confronting the economy. Dealing with the confluence of factors affecting domestic prices has been particularly challenging, for us at the central bank and equally so for consumers and businesses. CPI-All Items inflation, for instance, has been elevated coming out of the recent financial crisis, averaging 4.1% since 2010, much higher than the historical norm of below 2%. MAS Core Inflation, which excludes changes in accommodation and private road transport costs, averaged a lower 2.0% over the same period. Consumer price pressures have picked up more recently. CPI-All Items Inflation reached almost 5% in Q1 this year and households may face higher price increases for specific expenditure items. MAS is monitoring these and other cost indicators closely. Allow me to take this opportunity to highlight some conceptual issues concerning price adjustments in the  1  Phillips, P, Shi, S and Jun, Y (2011), “Testing for Multiple Bubbles”, Working Paper No. 03–2011, Singapore Management University. BIS central bankers’ speeches  1  economy and their implications for monetary policy.
That said, low bank profitability is not an inevitable consequence of negative rates. ECB analysis finds that the best-performing banks in the euro area in terms of return on equity between 2009 and 2017 share three key features: they have been able to significantly reduce their cost-to-income ratios; they have embarked on large-scale investments in information technology; and they have been able to diversify their revenue sources in a low interest rate environment.17 At its last meeting, the Governing Council decided, based on the weaker outlook for inflation, to extend the date-based leg of our rate guidance “at least through the end of 2019”. That in turn implies that we will continue to keep the very sizeable stock of assets bought under the asset purchase programme unchanged for even longer. The Governing Council also decided to launch a new series of targeted longer-term refinancing operations (TLTRO-III) in order to preserve favourable bank lending conditions and maintain the efficient bank-based transmission of our policy. These decisions ensure that our policy stance remains accommodative in the face of a weaker growth outlook. And the calibration of the remaining parameters of the TLTRO-III will reflect the evolving macroeconomic conditions. Our current reaction function is well designed to respond to further delays in inflation convergence. In such a situation, just as we did at our March meeting, we would ensure that monetary policy continues to accompany the economy by adjusting our rate forward guidance to reflect the new inflation outlook.

Philipp M Hildebrand: From monetarism to the inflation forecast 30 years of Swiss monetary policy Public lecture by Dr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, at the University of Berne, Berne, 23 November 2004. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Following the collapse of the Bretton Woods system, the Swiss National Bank, in 1974, was one of the first central banks to adopt a monetary policy with monetary aggregates as intermediate targets. The monetarist phase of the National Bank lasted until 1999. During this phase, the National Bank repeatedly changed its monetary targets. In the course of time, it adopted an increasingly pragmatic monetary policy and paid more attention to the development of the exchange rate. In December 1999, the SNB introduced its current monetary policy concept, which uses an inflation forecast as the basis for monetary policy decisions. On the whole, monetarist ideas had a positive influence on Switzerland’s monetary policy. They brought the realisation that price stability is important, thus furthering the process of disinflation in the 1970s and 1980s. Moreover, monetarism caused the SNB to make its monetary policy more transparent and rule-based. The use of monetary aggregates as intermediate targets, however, was more problematic. With money demand proving to be too instable, simply controlling money supply growth was not sufficient to achieve price stability.
We necessarily take asset prices into account, both in our forecasts and in our policy decisions, but insofar as we cannot influence them directly we have to be satisfied with seeking to offset their effects on demand and inflation through other channels of the transmission mechanism. And the same is true, in a broader sense, of external demand shocks, which national or regional central banks cannot themselves directly affect, so that they must try to compensate for them through offsetting changes in domestic demand growth. What all this means, in turn, is that the most monetary authorities can hope to achieve is to maintain overall macro-economic stability; we cannot pretend that this means stable conditions for every sector of the economy, still less every individual producer. Now let me be clear, I'm not pleading impotence! Monetary policy can have very powerful effects on overall macro-economic stability. But it is important that the limitations of monetary policy - what it can and what it can't hope to achieve - are clearly understood. Otherwise expectations are likely to be disappointed, and disappointed expectations may lead to building pressure for alternative policy actions, which may not in the event be in our longer-term economic interest. Against that - rather long-winded - background I turn to the uncertainties in the present world economic situation.

The major uncertainty, of course, relates to the situation in the United States - the world's largest economy - which had experienced a period of exceptionally strong economic growth with relatively low inflation until the latter part of last year, which itself played a vital part in buoying up the whole world economy through the Asian financial crisis. Briefly - and no doubt oversimply - this very strong performance was made possible by developments on the supply side of the US economy in the form of exceptional productivity gains, as the application of new information and communications technologies spread through the economy. This development - though extremely difficult to quantify promised a higher sustainable rate of growth in the US economy and higher corporate earnings growth. That expectation in turn contributed to a rapid rise in equity prices, especially in the "high tech" sectors, which helped stimulate both business investment in the US and consumer demand causing the private sector to move into financial deficit. It also attracted massive direct and portfolio investment inflows from abroad which over-financed an increasing current account deficit in the US and caused the dollar to strengthen against other currencies. But by the first half of last year the US economy was expanding at a rate of around 5%, which even on the most optimistic view of underlying productivity growth was clearly unsustainable.
Interest rate setting cannot remedy this. Banks primarily rely on lending funds that they have borrowed, either in money and securities markets or from depositors. Norwegian bank equity capital only accounts for about 6 per cent of bank balance sheets. By way of comparison, Norwegian limited companies have an equity ratio of close to 40 per cent. Since banks manage customer deposits and because they have low equity capital, it is important they have effective risk management systems. Banking activities are also subject to regulation and supervision by the authorities. The law establishes minimum levels of capital for banks. Banking activity is pro-cyclical. During an upturn, the value of assets increases more than debt. This strengthens bank earnings and solidity. Increased equity capital provides room for additional lending. During a downturn, securities values fall and loan losses rise. Banks will then tighten up. Banks state financial assets at market value. 8 When value changes rapidly come into evidence in the accounts, bank owners and creditors are provided with better insight into a bank’s financial position, and banks can then rapidly act to maintain their capital adequacy. The new capital adequacy rules – Basel II – are designed to strengthen the stability of the financial system. The capital requirements seek to ensure that a bank’s capital is commensurate with its risk profile.

Prices, investment and home sales show considerable swings. Homes are important forms of collateral and price developments influence household borrowing and give rise to credit cycles. Housing loans account for 40 per cent of Norwegian bank balance sheets. 5 The framework conditions for the housing market are thus important for how wide fluctuations in output and employment are and for the risk of financial shocks and instability. The experience of the banking crisis in the early 1990s did admittedly entail limited bank losses on loans to households, and substantial losses on loans to business and corporate customers, which were affected by a fall in household consumption. Banks may certainly refer to this when they assess the credit risk of their loans, but they should perhaps not be as certain that people will stand by their creditors in the future as they did 15-20 years ago. Household debt is very high. Attitudes may change and debt servicing discipline may also be influenced by the debt settlement scheme that has gradually become less  4  See Financial Stability 2/2004, p 36, Norges Bank. 5  Including branches of foreign banks, subsidiaries and housing loans in mortgage companies. 4  BIS Review 110/2008  restrictive. 6 Banks should make ample allowance also for this risk in their loan disbursement and interest rate premiums. It is important for stability in the housing market that the supply of housing reacts rapidly to changes in demand.
The Swedish banks typically fund their mortgage loans by issuing covered bonds for which the mortgages act as collateral. A large proportion of these bonds are issued in foreign currencies, mainly euro and US dollars. The reason that the banks have chosen to get funding on the foreign markets is probably that they want to spread their sources of funding across different markets. This is also something that the credit-rating agencies encourage. It has also often proved to be an inexpensive method of funding mortgage loans. However, broadening the investor base may also mean that it consists of a larger percentage of volatile investors. Problems on the Swedish housing  BIS central bankers’ speeches  5  market may therefore lead to the banks finding it difficult to refinance their mortgage loans. We actually believe that the banks can manage rather substantial falls in the market value of housing, but if the investors' assessment is that the risk have increased they may choose not to buy the Swedish banks' bonds, despite the fact that they only entail a minor credit risk. Such concerns may also make other types of market funding more expensive and more inaccessible if the investors choose to reduce their exposures to the Swedish banking sector. We saw examples of this in the autumn of 2008, when foreign investors wished to offload Swedish mortgage securities and the market demand for more liquid instruments, particularly Swedish government securities, increased.

Given that all the Swedish banks benefit from the Riksbank’s foreign-exchange reserve, it would not be unreasonable for them to share the costs of maintaining it. If we can price this in an effective way it will also give the banks an incentive to reduce their own currency risks. This would reduce the risks to financial stability in the Swedish economy. BIS central bankers’ speeches  9  It is of course no secret that we are also looking at mortgage loans from the asset side in the banks’ balance sheets. As I have already pointed out, the banks’ risk weights are very low. Finansinspektionen intends to begin applying a risk-weight floor of 15 per cent for the banks’ portfolios of Swedish mortgage loans. The Riksbank supports the proposal for a risk-weight floor of 15 per cent. We also believe that there are good reasons for analysing whether this floor needs to be raised even further. One important reason is that the public sector and non-financial companies would have to bear a large part of the risk if the debt-servicing ability of the households were to weaken. I have also spoken about the risks arising from the fact that a large proportion of the mortgage loans are interest-only loans. In this context, the Swedish Bankers’ Association’s recommendation that all mortgages that exceed a loan-to-value ratio of 75 per cent should be amortised is of course welcome, although one may ask whether this is enough.
Faced with these constraints, major central banks have implemented an array of non-conventional measures, including forward guidance and QE, in order to help stimulate demand by lowering long-term interest rates further. So why is demand proving so slow to pick up in spite of these highly stimulatory measures? [slide 5] Wage-setting mechanisms are likely to play a role. Insufficient attention has been given to this, due to differences between countries and the fact that it is a micro-level issue. The muted reaction of wages to stimulatory measures and to a tense labour market is particularly puzzling in Germany. On the contrary, real wages in France have been relatively dynamic, despite a deteriorated labour market, leading to further competitiveness losses. This reflects in part the minimum wage and the associated automatic revaluation rules. And yet wage setting is an important issue not just for employment, competitiveness and growth, but also for monetary policy. Wages are a determinant of cost inflation, whereas wage negotiation is likely to take into account the central bank inflation target – over the medium run, wages should in theory increase at the rate of productivity growth plus the inflation objective. What is more, wage setting policies could improve coordination in the euro area, as relative wages could contribute to the correction of imbalances. Although this issue attracts less attention than fiscal policy in the public debate, there would be merit in exploring it further in each country, including in France, and in the euro area as a whole.

Research has shown that undertaking coordinated reforms in  2  See R. Bouis and R. Duval (2011), Raising Potential Growth after the Crisis: A quantitative Assessment of the Potential Gains from Various Structural reforms in the OECD Area and Beyond, OECD Economic Department Working Papers No. 835, OECD Publishing. http://dx.doi.org/10.1787/5kgk9qj18s8n-en. Fast implementation refers to phasing-in over 5-years, while slow implementation refers to phasing-in over 10-years. 6  BIS central bankers’ speeches  all countries can boost GDP more than in a situation where each country acts alone.3 A more widespread approach to reforms in all euro area countries can therefore contribute to a stronger recovery in the stressed countries and in the euro area as a whole, through positive supply and demand effects. Conclusions Let me conclude. The euro area has come a long way in addressing its problems. The progress that has been made is remarkable and covers a wide range of areas and actors. The ECB has been central in stabilising the euro area economy, smoothing the adjustment process of the stressed countries and restoring the proper functioning of the monetary transmission channel. At the supra-national level, EU governance has been strengthened and, in particular, the Banking Union is being established. And at national level, progress is ongoing towards restoring fiscal soundness and driving forward structural reforms. The pay-off from these reforms is becoming increasingly visible: in 2013, we already saw signs of a turnaround in most euro area countries.