samchain/econo-pairs-v1 huggingface dataset:
The interaction between the political authorities and the central bank can be effective if the authorities take the role of “leader”, and the central bank the role of “follower”. Inflation targeting provides a clear indication as to how the central bank should respond in different situations. The political authorities are the “leader” in this interaction. They can internalise the central bank’s – the “follower’s” – pattern of response in their actions. 13 Government spending growth can then be decided knowing the effect it will have on interest rates. We have also learned from history that financial bubbles and crises occur from time to time. Even though financial crises may seem to be very different, they usually have a common feature. The US economist Hyman P. Minsky was of the view that this could be summed up in five stages: First a shock, often triggered by a technological breakthrough or changes in legislation and regulation of the business sector, followed by a period of growth – a boom – where new technology and opportunities are applied. This turns into euphoria – people get carried away. At some point some people wake up and take out their profits by selling. This triggers a fall in asset prices and equity prices and ultimately leads to panic and a crash. 14 This is referred to as the Minsky moment. We are now in the midst of a global financial crisis, which originated in the US housing market.

Ásgeir Jónsson: Speech – 62nd Annual Meeting of the Central Bank of Iceland Speech by Mr Ásgeir Jónsson, Governor of the Central Bank of Iceland, at the 62nd Annual Meeting of the Central Bank of Iceland, Reykjavík, 30 March 2023. *** "When a traveller gets lost in the fog or a storm and loses his sense of direction, it is said that he starts going around in circles and eventually feels as though water flows upstream. In our economic and labour market affairs, we Icelanders are utterly lost, and the circles we navigate are growing smaller and smaller. Similarly, our sense of real value has become distorted, so that it seems to us that the line graph illustrating the nation's prosperity is aiming upwards when it is actually pointing downwards." These words are taken from Morgunblaðið's Reykjavík Letter editorial on Sunday 19 August 1979. I am quite certain that the author was poet and editor Matthías Johannessen, and I have never found a more accurate description of Iceland's economic situation that summer. The old adage that poets see more clearly than others still holds. Yes, in summer 1979, annual inflation had soared to a new high of more than 60%. And yes, it had happened in spite of innumerable economic policy actions, emergency acts of law, and other responses that were supposed to drop a net over inflation - which nevertheless kept on climbing. Price instability begat political instability. Governments came and went. Wage agreements and currency devaluations played leapfrog, fanning the flames of inflation.
Banks have a total market share of over 50 per cent, while mortgage companies and finance companies have a combined share of 14 per cent. Growth in financial markets makes it easier to channel savings surpluses to customers with sound investment plans. It also makes it easier to diversify risk. Both enhance the economy’s growth potential. At the same time, a larger financial sector may increase the consequences of financial instability for the real economy. 1/6  As a result of globalisation, debt and financial assets are now more widely distributed across countries. Home bias has declined. This has reduced the risk in the financial system and improved the relationship between risk and return. The Government Petroleum Fund has contributed to a sharp decline in home bias in Norway. In recent years, Norwegian life insurance companies have also invested more of their capital abroad. Tendency towards larger entities and increased concentration National consolidation In the past few years, domestic mergers and acquisitions have been a central feature of the European banking industry. Concentration, which can for example be measured by the size of the five largest credit institutions, varies considerably across countries. However, concentration generally appears to be higher in small countries than in large ones. It is not particularly high in Norway, and is lower than in Denmark, Finland and Sweden. Developments in the number of credit institutions are another measure of market consolidation. The total number of credit institutions in the euro area has been sharply reduced over the past eight years.

What influences developments in the housing market? Norges Bank’s calculations show that high wage income has pushed up house prices. The contribution from interest rate changes has also been high in the past two years but has diminished somewhat recently. Interest rate changes have a strong and rapid impact. From 2004, housing starts were substantially as a result of high house prices, low interest rates and a favourable economic outlook. In Oslo in particular, housing starts have been high. A higher supply of dwellings will reduce pressures in the housing market. 4/6  When we increase the interest rate, we expect house prices to rise at a slower pace. Norges Bank increased the interest rate by ¼ percentage point last summer. Before this increase, banks’ mortgage rates fell, even though Norges Bank’s sight deposit rate remained unchanged. Stiff competition for mortgage loans and lower capital requirements for mortgage loans when the Basel II Accord comes into force may have contributed to this. In recent years, nominal long-term interest rates have fallen more than inflation. The real interest rate has declined. This may not only be an expression of economic conditions, but may also reflect a lower normal level for real interest rates. A lower normal real interest rate level will result in higher equilibrium prices for all capital goods, including houses, because the present value of future returns increases.
In 1990, shortly after the fall of communism, I became Governor of the National Bank of Romania, having to put into practice the transition from a monobank-type system to a two-tier system, while the country’s economy was going through major changes from the ruinous central planning to a market economy. As a matter of fact, in retrospect, I can say that my entire career has spanned several decades marked by truly ground-breaking policy and paradigm shifts. Some of the recent ones, such as quantitative easing and close to zero or even negative monetary policy rates, would have been inconceivable even a few years (not decades) before they occurred! The experience acquired through the years, both as a researcher and as governor, makes me reluctant to engage in speculations on the future of central banking in 10 or 20 years’ time, particularly at the current juncture when the global economy is in a state of flux. Nevertheless, there are a few old and new things about central banking which I believe will continue to be relevant in the future. I would start by pointing out that, in the extremely complex post-crisis economic and financial environment, the mission of a central bank cannot be simple. There are so many transformations going on right now, after the global crisis not only invalidated certain elements of mainstream economics, but also changed the order of priorities on policymakers’ agenda.

It is expected, however, that central banks will make more explicit their concern for all the “three aspects of stability” in their policy decisions, realising that price stability and financial stability are much more intertwined than we used to think. I believe this development has farther-reaching consequences when it comes to the future of central banking. I can easily imagine, some years down the road, a more “normal” world in which unconventional monetary policy tools are a thing of the past, since their relevance is ultimately circumstantial, but I cannot imagine a future where the explicit concern for financial stability and the macroprudential policy are not central banking fixtures. To be frank, the NBR has never had the luxury of being concerned exclusively with price stability and interest rate setting in the belief that financial stability and exchange rate stability will follow. In a world with freely moving capital, the idea of being able to manage aggregate demand exclusively via interest rates would have been an illusion: the interest rate hikes required to manage aggregate demand and anchor expectations would have entailed further capital inflows and an unsustainable nominal appreciation, thus boosting foreign currency lending and creating vulnerabilities on the financial stability front. That is why, when introducing inflation targeting in 2005, the NBR opted for the “light” version of the strategy, which meant retaining the managed float feature of the exchange rate regime.
And output has risen in every single quarter since the middle of 1992, something that is true of no other G7 economy. Why were the 1990s so successful? And can that success continue? Four features of our economy lie behind this improved performance. First, the new monetary framework - based on an explicit target for inflation, a high degree of transparency, and, since 1997, independence of the Bank of England made it clear to everyone that monetary policy was, and would continue to be, targeted on maintaining low and stable inflation. Second, a substantial fiscal consolidation turned a deficit of 8% of GDP in 1993 into a sustainable position for the public finances based on a set of clear rules for government debt. Third, a continuing programme of supply-side reforms, over a period of 20 years, made it possible to reduce unemployment without generating higher inflation. Fourth, although the unexpected twists and turns of the world economy did pose real challenges to monetary policy, especially in the latter half of the decade, those shocks tended to average out over time rather than cumulate in either an upward or downward spiral. In other words, the economic surprises alternated between good one year and bad the next, rather than adding up to “one damn thing after another”. In that sense, Lady Luck smiled on us. Of course, we were not alone in enjoying the 1990s.

Mervyn King: Stocktake of the UK economy Speech by Mr Mervyn King, Governor of the Bank of England, at the East Midlands Development Agency/Bank of England Dinner, Leicester, 14 October 2003. *  *  *  The Bank of England is back in Leicester. Between 1844 and 1872 there was a branch of the Bank of England in Leicester, located in Gallowtree Gate. Sadly it operated at a loss, in part because the Agent lived in style driving about town in a carriage and pair with two men in livery, and the branch was closed. Only six years ago did we re-establish our links with the City through the creation of a new Agency in the East Midlands. The purpose of that Agency - staffed by four members of the Bank who work in rather less style than their predecessors - is to listen to you and other businesses about what is happening on the ground. The reports of our Agents around the country are crucial to the Monetary Policy Committee. The information we receive from you, and our other eight thousand business contacts around the country, are key pieces in the large jigsaw puzzle of the UK economy that we assemble each month in order to see the big picture. Some of the statistical fog hanging over the British economy lifted a week or so ago with the publication of a new picture of demand and output over a number of years.
This requires us to build up our own in-house teams of IT experts and to provide them with the proper training and guidance on what to look for. We are currently trying to do this and have recently hired an external consultant to help us to develop the right processes and techniques. This is part of a more general move to enhance our supervision to make it more sensitive to the various types of risk with which our banks are faced, and more focussed on the processes used for managing those risks. This becomes all the important in the New Economy, because although technological change presents obvious new opportunities to the banks, it also magnifies their risks in certain respects and increases the complexity of their business. Security risk is one clear example of this, as I have already mentioned. But increased liquidity and credit risk could be added to the list - the former because the internet will make it easier to move funds between banks at the touch of a button and the latter because banks may in future have a more transitory relationship with their customers. Technology risk is also a concern. With technology changing so rapidly, it becomes more vital that banks invest wisely in new systems and choose the right moment to do so. Early movers run the risk of being saddled with systems that do not work as promised, or which quickly become obsolete. Equally, there is the risk of being left behind by competitors if you wait too long.

Moreover, the ultimate aim of the policy is to get the annual rate of growth of nominal spending in the economy back to the 5% or so that it averaged during the first decade of the Monetary Policy Committee’s existence and which is consistent with inflation at target and growth at trend. In contrast, over the past year, nominal spending has fallen by roughly 5% (Chart 8). The £ billion of asset purchases has been calibrated with this in mind, though it will be some while yet before we know how effective the policy has been in achieving the objective. Indeed, the truth is that we will probably never know exactly how effective the policy of Quantitative Easing has been, for the simple reason that we can never know with precision what would have happened in its absence. My only confident prediction is that academic economists and their PhD students will be poring over the topic for decades to come. To conclude, I want to return to some accounting issues. As I noted earlier, the Asset Purchase Facility is set up as a separate entity, indemnified by the Treasury. The Bank is committed to transparency about its operations, and we will be publishing annual accounts for the Asset Purchase Facility, drawn up in accordance with established international accounting principles. The Asset Purchase Facility receives coupon payments from the government on the gilts it holds, as well as some income from its small holding of corporate assets.
This conclusion stems from the observation that the current economic environment is qualitatively different from previous post-World War II business cycles. Most post-war recessions were preceded by high rates of resource utilization and rising trend inflation. This prompted a tightening of monetary policy, which, in turn, dampened interestrate sensitive spending, particularly on housing and consumer durable goods. Then, as underlying inflation pressures subsided, monetary policy was eased and interest-rate sensitive spending rebounded, often quite sharply. The current business cycle is different in one key respect. It was preceded by a global financial crisis. The financial crisis was due, in large part, to excessive leverage and excessive investment in real estate assets. It will take time to unwind these excesses. Today, I will offer a framework for assessing the forces that have shaped the recent performance of the U.S. economy. This framework will provide context to the fiscal and monetary policy responses to what is now being called the “Great Recession.” Then, I will discuss the economic outlook for the United States over the next year. Before I proceed, I want to emphasize that these views are my own and do not necessarily reflect the views of the FOMC or the Federal Reserve System. Building an analytical framework Say’s law – named after the French economist Jean-Baptiste Say – states that the aggregate value of incomes earned in an economy over some period of time must by definition equal the value of all goods and services produced over that same time period.

Anti cash campaign Recent developments have impacted cash reduction in the economy. On the other hand, we have carried out an intensive public activity, of clarifying and promoting nature where meetings of another  BIS Review 39/2005  3  nature were held too, in which we, all of us as a banking system, have been concretely engaged. Allow me to remind you the meetings we have organized with business and utility services business and also that on the primary market of Treasury bills. Using this opportunity I would like to bring again to your kind attention the problems raised even beforehand. I hope that now, on the eve of finalising the Automated Electronic Clearing House project, each bank separately and the Association itself are seriously thinking to raise the profit level from this facility that Bank of Albania offers in this moment. I would appreciate if from the Association will have some comments or potential reactions on the system preparations and the possible assistance and co-operation of Bank of Albania in this direction. After the completion of this project, I deem that we must think more seriously about the numerical and qualitative addition of electronic payments. For this purpose I would envisage to start thinking from now about future projects in the payment infrastructure. I personally will insist that even in this direction all of us as a banking system look forward to the European Union directives, in order that each future step is oriented toward the country integration in the European Union.
Larger and more efficient securities markets - both in equities and debt instruments - provide more financing alternatives for companies and investment alternatives for savers. Companies financed in the securities markets are continuously monitored through a transparent process. Well-functioning securities markets may thus increase the profitability of capital and hence economic growth, by making sure that capital is allocated to the best new investment projects and by facilitating the restructuring of existing companies. In other words: competition for capital contributes to creative destruction. In my opinion, larger and more efficient securities markets will also reduce the risk of financial instability. Let me give you a recent example. The Long Term Capital Management crisis in 1998 showed that banks and securities markets can complement one another in crisis situations. During the crisis, the market for securities with credit risk dried up for a short period. Banks then increased their lending, and thereby averted a more extensive shortage of credit. More frequently, financing through securities markets has been used as a substitute for bank loans in the event of banking problems. The goal of financial stability thus implies both well-functioning banks and securities markets. The optimal balance between the two is difficult to define, but in most countries - including the Nordic countries the financial system would be more robust with larger, more developed securities markets than is the case today. This could also enhance the growth prospects of the respective economies. 5.

Mitigating measures would be most effective if they involved both monetary and fiscal restraint, as well as internal adjustment of the national economy, including a rise in the exchange rate. The more restraint shown on the fiscal side, the less need there will be to raise interest rates. A higher króna exchange rate also means less cause to raise interest rates. The exchange rate was fairly stable from the spring of 2002 until early this winter. It then began to rise and continued to do so steadily until early February of this year. The Central Bank has stated its view that the exchange rate rise in recent months has been primarily due to the effect of the proposed major construction projects in East Iceland. The operations of the aluminium smelter will likely cause the equilibrium exchange rate for the króna to be higher than otherwise. Furthermore, it appears evident that the influx of foreign currency in connection with these projects will be considerable, with higher domestic interest rates than otherwise. All of this affects market expectations and makes the króna exchange rate higher than it would be in the absence of plans for major development in East Iceland. The economy could thus be said to have already begun adaptation to the coming projects, i.e. the exchange rate adjustment has begun and is even well on its way.
Our analysis identifies three key factors: first, there are differences in the goods component of the CPIEFE, which point to a lower transfer to local prices from the peso depreciation throughout 2018. This may be explained by the fact that during this period the variation of the peso/dollar parity responded to movements of the global value of the dollar, as opposed to past parity variations (e.g. in 2017) that responded to idiosyncratic shocks to Chile (figure 2). The difference in the pass-through coefficient of forex variations to inflation according to the origin of the former was widely documented in a box in the March 2016 Report and today we see it reflected in the recent behavior of inflation. Second, there are also differences that could be more linked to supply factors in some markets of products and services. One example is the increased competition in the car industry, as well as the emergence of lowcost alternatives in passenger air transport, as seen in the behavior of the CPIEFE for services. The same applies 2  to the increased competition in special offers of telecom packages mobile phone services. Some of these phenomena have been captured by the new CPI thanks to some of its methodological improvements (figure 3). Third, the labor market presents greater slack, resulting from the massive immigration of recent years. Last December, the INE published the new population projections that use information from the 2017 Census, which ratified the significant increase in the immigrant population beginning in 2015.

17 17  Jul.17  1818  Jul.18  19 19  (*) As from January 2019 the line uses the new indexes with 2018=100 annual base, so they are not strictly comparable with past figures. Sources: Central Bank of Chile and National Statistics Institute (INE). 9  Figure 3 Selected CPI prices (indexes, January 2018=100)  Mobile phone services  101  Telecom package services  101 105  105  100  100 100  100  99  99  95  95  98  90  90  98 16  17  18  19  New cars  110  16  105  100  100  95  95 16  17  18  18  19  Air transport services  110 160  105  17  160  120  120  80  80  19  16  17  ----2013 basket  18  19  ----2018 basket  Source: National Statistics Institute (INE).