samchain/econo-pairs-v1 huggingface dataset:
FRBSF Working Paper # 99-13. http://www.frbsf.org/econrsrch/workingp/wp99-13.pdf  BIS Review 82/2000  2  increase in equilibrium rates. The large federal budget surplus has increased the supply of national saving, while the rising trade deficit was matched by an increased supply of capital from abroad. But overall, it appears that we would have been contributing to an inflationary monetary policy if we had tried to hold real rates at their old levels. The other two reasons support an actual tightening of the stance of policy. Inflation tends to decline initially when productivity accelerates in response to a technology shock, because increases in labor compensation tend to lag behind increases in productivity growth. Eventually, though, the shock wears off, as the rate of productivity growth stops increasing and wages accelerate to catch up. So a technology shock is a “golden opportunity” - initially, it gives us lower inflation without a slowdown in growth or a rise in unemployment. However, to lock in the benefits and keep inflation at the new lower level, monetary policy would have to tighten. After all, in the end, inflation is determined by monetary policy, not by productivity growth. The final reason has to do with the “permanent income hypothesis”. A technology shock raises the prospect that incomes will continue to be higher in the future: in other words, permanent income may increase. This could mean that we will see an increase in spending before the additional capacity comes on line.

In addition, a technology shock also may give a boost to stock prices by raising expectations about future corporate profits. As a result, a wealth effect also may stimulate spending before the economy’s capacity to produce has expanded. To sum up, we know that the funds rate had to increase to contain inflationary pressures, regardless of whether the economy was being dominated by demand effects or supply effects. But the uncertainty arises when we have to decide how much to tighten and when to start. This uncertainty boils down to the question of where FOMC actions should be along the spectrum of approaches ranging from strongly pre-emptive based mainly on forecasts of future developments - to more cautious - based mainly on emerging data. Ideally, policy should tend more toward the pre-emptive end of the spectrum because of the long lags between policy actions and their effects on inflation. If a central bank reacts early and correctly to an inflationary threat, it can alter inflation expectations and cut off the rise in inflation before it gets started. It looks like that’s what happened in the US in 1994. At that time, we were dealing with forecasts of higher inflation that were based not only on increasingly tight labor markets but also on low short-term real interest rates. So the Fed responded by raising interest rates substantially. In that case, inflation didn’t take off, and the economy moved smoothly into the favorable environment we’ve enjoyed in recent years.
The resulting lower real interest rates and easier financing conditions might well have exacerbated the accumulation of financial and real imbalances by supporting even bigger asset and credit bubbles and ultimately have led to a larger crisis as these bubbles burst. During the crisis, Monetary Union has also helped to contain cross-country heterogeneity in bank credit conditions and supported the availability of loans to the private sector. Not only have standard and non-standard monetary policy measures served to ease financial conditions on average, they have also helped to limit the dispersion of bank interest rates across countries. For example, the range of long-term rates on bank mortgage loans to households across euro area countries has been limited to around 1½ percentage points in recent years, which is similar to the dispersion seen at the end of 2006, before the crisis started. While the spreads between interest rates on bank loans to non-financial corporations in Greece and Portugal have increased by up to 2 percentage points over the euro area average, the equivalent spreads for Ireland and Spain have remained modest over the entire crisis period. 4  In 2009 and 2010, GDP growth equalled: –7.6% and –1.0%, respectively, in Ireland; –2.3% and –4.4% in Greece; and –2.6% and 0.8% in Portugal. These figures compare with GDP growth of –4.1% and 1.8% in the euro area as a whole.

Indeed, all countries have homework to do: there is much scope for improvement even in the strongest countries if the benefits of price stability are to be fully reaped by the people of Europe. The responsibility for fiscal and structural policies remains at national level. But we may need to consider some policy areas where, in order to ensure the stability of Monetary Union and the euro, more responsibilities should be assumed at area-wide level. The financial crisis has demonstrated that a lack of financial integration can complicate the implementation, and threaten the effectiveness, of the single monetary policy. Policy interest rates can only guarantee price stability when their transmission to the economy is effective and reasonably uniform. To ensure such transmission, we need greater harmonisation in financial supervision and regulation. These are tasks that should be performed at euro area level. Harmonised financial supervision and regulation will also support deeper financial integration within the euro area. In turn, such integration will foster risk-sharing and improve the shockabsorbing capacity of Monetary Union. Some of the vulnerabilities of the euro area we have seen in recent years stem – at least in part – from the fragmented nature of the European financial sector and the supervisory regime that supports it. What we have witnessed over the past few years in financial markets represent the growing pains of the euro, not its death throes. With the necessary actions taken at national and areawide level, I am confident the euro will go from strength to strength.
Chart 8b shows that interest rate risk has indeed risen in periods of low interest rates or, as happened between 2009 and 2014, has remained at high levels. At the current margin, we are seeing first signs that risk has once again increased slightly since the introduction of negative interest. A third potential risk to financial stability arises from the fact that, in the prevailing interest rate environment, non-banks such as insurance companies and pension funds in search of yield also find the prospect of granting mortgage loans attractive. Even though currently only a relatively small portion of mortgages is granted by non-banks, it is doubtful whether the banks will be able to maintain the current elevated asset margin on new mortgage loans in a prolonged period of negative interest rates. The increased competition as a result of non-bank  5  Yields on real estate investments are often compared with those on Confederation bonds. The different levels of risk on these asset classes do justify a certain risk premium or yield spread, but that spread is currently very high. We can thus assume that there is a significant spread, even after the different levels of risk are taken into account. 6  The term maturity mismatch describes an imbalance between the usually longer repricing maturity on the assets side (e.g. for mortgage loans) and the shorter repricing maturity on the liabilities side. BIS central bankers’ speeches  5  participation could reduce banks’ scope for raising mortgage rates.

Measures of consumers’ propensity to save have surged to historical levels, far above what we saw after the Lehman crash. Some of this reflects “forced saving” because people have been unable to spend and will therefore reverse naturally. But we are also seeing significant precautionary saving, which is a sign that households are preparing for an uncertain future, and uncertainty is likewise a key factor in weak business investment. There are two main sources of uncertainty today. The first source is uncertainty about how the economy will recover from the coronavirus (COVID19), which is evident in the Eurosystem’s latest macroeconomic projections. Our baseline projection sees GDP falling by 8.7% this year, but this is surrounded by a wide range of potential scenarios. In our mild scenario, the drop in GDP would be 5.9% this year, and in our severe scenario it would be 12.6%. In this latter case, output would still be well below its pre-crisis level at the end of 2022. Faced with such an outlook, it is understandable that households are anxious about their future incomes and firms are hesitant about making irreversible decisions. In particular, many citizens fear that, in a slow recovery, some jobs will be lost once government support schemes are phased out. This underlines why it is so important that the recovery is properly managed and that the economy is adequately stimulated. Confidence in government policies is critical to reducing uncertainty, which is itself a form of stimulus.
Rather we need effective supervision as well, something that is inevitably harder given the cross border nature of the activity and the potential both for gaps and for different priorities. That creates a need for close cooperation between both home and host supervisors to deliver effective global consolidated supervision of international banks. The changing approaches we’ve seen since the crisis There is a spectrum of approaches that supervisors can take to the supervision of international banks. In the absence of a single global consolidated supervisor, let me describe the two logical extremes. First one can have a model of pure home supervisor responsibility, based on branches of the parent group and where the host supervisor relies completely on the home supervisor. By allowing the most rapid allocation of capital around the globe, this model delivers the greatest benefits. But it simultaneously creates the greatest risks to financial stability in host countries because of the potential lack of clarity of remit, information, and responsibility and powers to deal with the risks international banking brings. Alternatively one can have a pure host-led approach. This would require operations overseas to be undertaken in subsidiaries, with those subsidiaries supervised in the same fashion as domestic banks, in effect treating the overseas entity as independent and standalone. This model reduces the risk of an abrupt cessation of financial services following events overseas and so, at first sight, does a better job of protecting financial stability. But it makes the cost of entry much higher.

The first two central banks, the Sveriges Riksbank and the Bank of England, were founded in the second half of the seventeenth century. The Banco Nacional de San Carlos, the first forerunner of the Banco de España, was founded during the reign of Charles III, the Enlightened, in 1782, and the Banque de France opened its doors in the year 1800, shortly after the coup of 18 Brumaire, which brought Napoleon to power. Central banks were initially set up to satisfy European states’ demand for funds, to pay for their increasingly costly armies. The banknote issuance monopoly, which most central banks enjoyed from their foundation, was the main feature that distinguished them from commercial banks. Until the First World War, the operations of central banks were linked to the gold standard. The interwar period was marked by a number of economic disasters, such as the hyperinflation in Germany and the Great Depression in the United States, partly associated with the attempt to adapt the role of central banks to the new political realities. The post-war world was marked by the Bretton Woods agreements, which are named after the location (well chosen, it is really a beautiful place that I would recommend you to visit when you get the chance), in the US state of New Hampshire, where there was then, and there still remains today the hotel at which an international conference was held in July 1944.
In some periods, oil prices have been important for developments in the krone exchange rate, while in other periods there has been no clear relationship. In August, oil prices fell at the same time as the krone depreciated. Interest rates are still low among many of our trading partners, in spite of the interest rate increases in several countries as a result of rising energy prices and higher consumer price inflation. In the November Inflation Report, Norges Bank assumes that money market rates among our trading partners will gradually increase over the next few years. Slower growth in the US has contributed to expectations that the rate tightening cycle is nearing an end and that the policy rate will be lowered in the course of next summer. Our interest rate projections are based on the assumption that external and domestic interest rates will rise to a somewhat higher level in the longer term than implied by forward interest rates. Monetary policy assessments and strategy Monetary policy in Norway is oriented towards low and stable inflation, with annual consumer price inflation of close to 2.5 per cent over time. In its conduct of monetary policy, Norges Bank operates a flexible inflation targeting regime, so that weight is given to both variability in inflation and variability in output and employment. At Norges Bank’s Executive Board meeting of 1 November, the sight deposit rate was raised by 0.25 percentage point to 3.25 per cent.

The exponential increase of contagion effects through cross border flows and stocks, but also asset price volatility, has led to an evolution of the IMF’s view on capital flows, from its original doctrine of liberalisation, into a more pragmatic Institutional View. More importantly we need to enhance the crisis prevention toolkit and avoid excessive risktaking. Our first line of defense to address financial stability issues should be sound macroeconomic, prudential and structural policies. It is the reason why it is so important to strengthen the bilateral and multilateral surveillance of the IMF. But, prevention can never cover all risks. The Global Financial Safety Net (GFSN) has been reinforced over the past few years, thanks to the increased IMF capacity – whose total resources amount to about 1.3 $ trillion, and should be at least maintained in the future –, the development of regional financing agreements (RFAs) in Europe and Asia, and networks of central banks swaps. But the GFSN is still imperfect in coverage, and of insufficient size: total IMF resources have dropped from about 4 % of global external liabilities in 1980 to less than 1% in recent years.1 Besides, the coordination between the different layers of the GFSN should be more effective in case of a systemic crisis. There is also scope to make better use of precautionary instruments, and to protect sound by-standers without increasing moral hazard, as suggested in particular in the report of the G20 Eminent Persons Group on Global Financial Governance. B. Two new challenges after extending globalisation I.
In the second case, that is if the situation is rather one of a cyclical upswing, then clearly credit growth will have to undershoot nominal GDP growth for many years in the future. In both cases the present situation with credit growth significantly exceeding nominal GDP growth is not sustainable. However, the challenge to the financial industry to adapt to a much lower growth of credit is clearly larger in the second. This holds even if a harsh backlash in the form of an outright crisis can be avoided. Unfortunately it is not possible to precisely ascertain where we stand and what the future holds in store. Nevertheless, I will try to bring some clarity to the issue by examining – first – possible explanations for an increasing credit-to-GDP ratio (section 3), then by assessing their explanatory power in the Swiss case (section 4). Section 5 will conclude. 3  Between 2006 and 2008, the ratio temporarily decreased, as a result of the strong growth of GDP in this period. 4  In this context, it is important to note that a vast majority of outstanding loans in Switzerland are granted as mortgages (mortgage volume to GDP: approx. 140%). The discussion of the Swiss situation will thus focus mainly on mortgage loans. 5  As a third scenario it is also conceivable that there is a structural shift during which credit overshoots temporarily. This would also imply a certain correction down the road.

In 2012, these imbalances intensified further reaching levels that pose a risk to the stability of the banking sector, and hence to the Swiss economy. Here, two facts stand out. First, real estate prices in Switzerland have been persistently increasing since 2000, at accelerated speed since 2008, reaching levels estimated to be 40 to 60% higher than 12 years ago (see Figure 1).1 Second, the growth of credit volumes has been significant with the consequence that credit volumes relative to gross domestic product (GDP) have reached new historical peaks (see Figure 2a and 2b). The fact that these two developments have progressed hand in hand spells out conditions that may lead to subsequent financial instability. Indeed, historical evidence – widely documented by the Bank for International Settlements (BIS)2 – shows that such a twin development – elevated residential prices and dynamic credit growth – constitutes the prime advance indicator of financial instability. We only have to look outside our borders, to the US and various regions of Europe, or back through Switzerland’s own past to get a feel for the devastating consequences on the real economy of financial crises originating in real estate excesses. 2.  Credit: is the sky the limit? Today I would like to focus on one of the two critical elements mentioned above, the growth of credit volumes. Figure 2b easily explains the question asked in the title: is the sky the limit? The answer is just as easy.
In recent years regional central banks have also built up a large addition to their foreign reserves. Such a large pool of domestic savings should be channeled into long-term investment in the domestic markets to support growth and development in the region. At present however, the dominant financing tools in most Asian countries still continues to be short-term bank loans, and bond markets in the region still remain underdeveloped. The bulk of local savings has instead been channeled to international financial centers with a wider alternative for investment and well-developed financial markets. At the same time, Asia is a recipient of short-term portfolio flows that had been destabilizing and highly volatile. These funds have further aggravated the problem of maturity and currency mismatches making the region more vulnerable to fluctuations in international capital movements. Creating a more stable financial system Developing regional bond markets for Asia: Asian savings for Asian investment Efficient and liquid bond markets in Asia - both at the local and regional levels, would enable the private sector as well as the public sector in Asia to raise and invest long-term capital without the currency and maturity risks which accompany international capital flows into the region. Development of regional bond markets will help governments and businesses in the region reduce currency and maturity mismatches.

Philipp Hildebrand: The Swiss National Bank’s ability to act in the crisis Summary of a speech by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Executive MBA HSG, Universität St Gallen, St Gallen, 21 January 2009. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The global financial system is in the midst of the biggest crisis of the postwar years. Above all, the crisis is the most complex of this period. Problems in the US sub-prime mortgage market led to the breakdown of both markets and general trust. In particular, the interbank market, the nerve centre of the financial markets, froze up for several months. Governments and central banks managed to prevent the financial system from collapsing. The interbank market has been revived and risk premia have come down from their former record levels. In the meantime, however, the financial crisis has worked its way through into the real economy, which is now moving into a sharp downturn. In order to fight the crisis, the central banks have lowered their key interest rates aggressively. The instrument of the Swiss National Bank (SNB), the repo rate, has practically reached zero. However, this certainly does not mean that the SNB is incapable of action. If needed, there are other options available. The National Bank can extend the terms of repo transactions or give consideration to the purchase of government and corporate bonds.
As with other areas of economic policy, research in this field can help drive the action which I want to speak about next. III. And yet, it is still possible to transform public services The key issue with operating expenditure Neither our strategic review of the past few decades nor economic research offers much hope for progress. This leaves one way forward, namely practitioners and their commitment on the ground. I will therefore now focus on government operating expenditure, which is used in particular to produce major public services. It is sometimes argued that the deterioration in the public finances is primarily due to high amounts of social protection expenditure and transfers, which amounted to approximately EUR 900 billion ix in 2022, or 34% of GDP. Operating expenditure is far from being negligible: it accounts for almost a third of public spending (EUR 475 billion, or 18% of GDP) and is therefore a significant potential source for improving public sector efficiency. Central government and national agencies account for EUR 200 billion of this amount, but local authorities with EUR 155 billion account for an increasing proportion. When measured in terms of number of public employees, resources have steadily increased over time. According to the Cour des Comptes, x the number of public sector employees grew by more than one million between 1996 and 2020, i.e. an increase of 23% driven largely by local government (+58%, and  Page 13 of 19 still 47% even after adjusting for skills transfers).

xvi Lastly, we have maintained our nationwide presence by committing to keeping at least one branch in each département. This local presence is a prerequisite for public reform, faced with the impression that medium-sized towns are being abandoned. And this is in no way incompatible with generating substantial savings: we are preserving our front offices and contacts everywhere, but we have consolidated all the back offices in interdepartmental shared business centres, thereby achieving substantial productivity gains. Obviously, the Banque de France is not France and not everything can be transposed. I am sometimes told that we enjoy independence; this is indeed essential for monetary policy and financial supervision, and I should stress the point this year, which marks the thirtieth anniversary of the law of 1993 granting the Banque de France its independence. However, as regards good management, independence is neither sufficient - I even tend to believe that it should require greater exemplarity everywhere it exists - nor necessary: I provided the example of the Public Accounts Directorate. Our experience, along with many others - including those in other countries - can therefore be a source of hope from which I believe we can identify four levers for change. Taking pride in our missions, and their objectification Everything starts with clarification of our missions: pride means being able to explain what concrete services we provide to our fellow citizens. Fortunately, these missions are determined not by ourselves but by the political powers that be, i.e. Parliament and the government.