samchain/econo-pairs-v1 huggingface dataset:
5 A number of analysts have also speculated that the Riksbank sees the zero level as so important in itself that it would be wary of lowering the repo rate over the coming years even if the economic outlook and inflation prospects were to deteriorate. My view is that, as a result of this, there may be a risk of several people starting to make the interpretation that we have indeed taken our eye off the ball to a certain extent, or at least don’t have it as sharply in focus as we usually have. Too low average inflation creates problems Let me elaborate a bit on this. If the repo rate were to be raised as soon as around the turn of the year, the serious aspect is not in itself that the interest rate would then be 0.25 percentage points higher, although for someone who prefers an unchanged rate, there is of course no advantage in this either. The problem is instead that it might be perceived as the Riksbank deviating from what it normally Gordon, Skolimowski and Stirling (2019), and Milne (2019). An alternative view is that the Riksbank has simply become difficult to interpret, see, for example, Boije (2019). 5  3 [17]  does: designing monetary policy so that it is always very clear that the inflation target is the point of departure. This is of course particularly important in situations where there is a risk of confidence in the inflation target starting to evaporate.

If I may digress briefly into anecdote, I recall that Bill McDonough once related that he had asked his staff why, under the market risk amendment to the capital accord, it had been decided to apply a three-times multiplier to the outcome of VAR models. Why three times? The answer came back that three times was selected because “two times was too low and four times was too high”. I imagine that the process of selecting 4% minimum equity was very similar to this. The selection of a capital ratio ought, ideally, to depend upon answers to the following questions: what is the risk we are trying to limit? What is a good measure of that risk? What residual level of risk are we willing to tolerate? And how do we fix a capital level so as to achieve that residual level? These questions were not explicitly addressed back in 1988, although possibly we can infer some of the implicit answers from the regime that was established. However, although neither 1988’s Accord’s measure of risk nor its selection of the minimum capital ratio may have been scientifically derived, the Committee’s statement that we will at least maintain the overall level of capital in the system indicates that, ex post, they are reasonably happy with what the 1988 Accord achieved. But what exactly do they mean by this statement? And how do we go about achieving their intended outcome? Is it, indeed, a reasonable outcome to strive for? I will try to address these questions.
To paraphrase a well-known quote, when the facts change, we might need to change our instruments – but we do not change our mission. Managing the side effects In terms of reaching our objective, our package of measures is already having strong effects – perhaps stronger even than many observers anticipated. The latest data on bank lending show continued improvements in the cost of credit, the availability for credit and the demand for credit. Confidence has also notably improved, with the latest European Commission economic sentiment indicator confirming the pick-up in both consumer and business confidence. And the more confident firms and households feel in the recovery, the more credit should continue to improve. Crucially, our intervention in January also first halted and then reversed the fall in inflation expectations. For example, the 5-year forward 5-year ahead inflation-linked swap rate has risen from its trough of below 1.5% in January to more than 1.8% now. This helped lower real interest rates by almost 50 basis points at medium-term maturities. And it has also meant that we have experienced all the upsides of oil price shock in terms of lower input prices and higher real incomes and, by preventing second round effects, none of the downsides in terms of lower wage settlements and higher real debt burdens. Still, despite the success of our programme so far, it is important that we do not get carried away. Unconventional monetary policy must remain exceptional and time-bound.

Following the introduction of CRDIV we now have a wide range of new tools available to the competent authorities in the euro area and, with the creation of the SSM, a stronger framework to coordinate those tools and prevent inaction bias at the national level. Should we see any indications that low interest rates are leading to financial imbalances, the first line of defence is for the competent authorities to make full use of these new but hardly tested instruments. The division of labour is clear: monetary policy should focus on price stability; macroprudential policy on financial stability. Yet I am also sympathetic to the view expressed by the BIS that we need to approach macro-prudential with “a mix of ambition and humility” – that is, we need to be ambitious in using the new tools we have, but we also need to be humble in recognising their limitations. Research is so far relatively limited about the channels through which macro-prudential policies work and the magnitude of their effects. Moreover, as most macro-prudential tools are in fact micro-prudential, conflicts of competence between respective authorities could occur. This all the more that the degree of Europeanisation of micro- and macro-prudential  4  BIS central bankers’ speeches  competencies is not the same – not to speak of the competence pooling of sovereignty in monetary policy. And in any event, macro-prudential tools tend to be more effective in building resilience against financial shocks than preventing those shocks in the first place.
Still, even when from an individual perspective agents seem to follow a sound behaviour, macro-financial factors, particularly related to the interconnectedness of financial markets and institutions, the interaction between finance and the macro-economy can contribute to the build-up and propagation of aggregate macro-systemic risks. These effects have been at the heart of the recent financial crisis and it has specifically highlighted the need for a macroprudential approach to regulation and supervision, focusing on the financial system as a whole, complementing the existing micro-prudential framework. Macro-prudential policies aim to contain the build up of imbalances and ensure that the financial system is better able to withstand shocks. They will focus on regulatory and supervisory actions aimed at curbing the macro risks of financial market activity. In this regard, it Is, of course, of utmost importance to have a close co-operation and exchange of information between the institutions in charge of macro- and micro-prudential supervision. In the EU, the Ecofin Council has agreed to establish a new independent body responsible for macro-prudential supervision, the European Systemic Risk Board (ESRB). The main task of the ESRB – in which the European System of Central Banks, the Supervisory Agencies of the 27 Member Countries as well as the newly created European authorities will play a key role – is to identify and assess risks to the stability of the EU financial system and issue risk warnings if systemic risks appear to be significant. If deemed appropriate, the ESRB can make explicit policy recommendation.

However, the responsibility for the implementation of macro-prudential policies lies with national authorities. 4. Conclusions  We live in very challenging times. Although the increased interconnectedness of global financial markets have facilitated the build up of imbalances and transmission of shocks, financially integrated markets have served Europe well and remain a necessary pre-condition  4  BIS Review 81/2010  for the proper functioning of the euro area. The ECB will therefore continue its efforts to promote closer integration of our financial system. At the same time we should be aware of the opportunities, but also the challenges and risks that new developments in financial markets pose to financial stability and to the functioning of the real economy. With its involvement in the ESRB, the ECB will continue to play an active role in safeguarding the financial stability of the euro area. BIS Review 81/2010  5
Predictive models used for decision-making must be subject to regular reviews against consumer outcomes and redress channels need to be aligned with the digital experience. Indeed, we should be concerned that while the delivery of financial products and services is taking on increasingly digital dimensions, when something goes wrong, processes for consumers to seek redress are still heavily manual in nature. As for financial education, I am reminded of the old adage by Sir Francis Bacon: “Reading maketh a full man, conference a ready man, writing an exact man”. Today’s digital consumer – at least many of them – has neither the patience nor time to read, confer or write. In fact, this is almost the entire premise of digital financial solutions – brevity, speed and convenience. The short attention spans of financial consumers are further constrained by an overload of information and misinformation. Digital solutions that can efficiently deliver financial education to masses of people, while simultaneously providing capabilities to tailor knowledge and information to one’s personal circumstances (such as through loan affordability calculators), have gained increasing traction. However, the fact that digital interventions are more cost-efficient, accessible and scalable, do not automatically make them any more effective than more traditional interventions in the past that have failed to achieve a consistent and lasting impact in changing behaviour. We need to develop reliable insights into behavioural influences that may help or prevent consumers from making good financial decisions. This sounds simple in theory, but is as complex as an understanding of human psychology itself.

Dear guests, At the end of my speech I would like to emphasise that, although the challenges ahead are serious, their successfully countering is within our possibilities, if we all will know to rise to these challenges. I invite you to have an open and fruitful discussion, aiming at identifying a common work agenda for the continuing period. Thank You! 4/4  BIS central bankers' speeches
The adjustment of external debt will no doubt require continued current-account surpluses in the years ahead, which presupposes that the krona is weaker than its long-term equilibrium level. Moreover, the domestic demand trend needs to be balanced to prevent it from generating unduly high inflation. As central government debt is sizeable, it is also important that fiscal restraint continues, with the focus on debt repayment. However, a continuation of current-account surpluses of the magnitude we have seen in recent years is not to be expected. As domestic demand strengthens, the economy approaches full capacity utilisation and the monetary stance accordingly becomes less expansionary, the krona should appreciate, accompanied by diminishing surpluses on the current account. You would, of course, like to know the rate at which the krona would be linked to the euro in the event of Sweden opting to join the monetary union. Unfortunately it is still too early to answer that question. The rate will depend, for example, on Sweden’s competitive position relative to the countries that have already adopted the euro. We would also have reason to aim for a central rate that puts the Swedish economy on the right track and promotes a continued adjustment to internal and external balance. The optimum central rate might differ somewhat—though probably not all that much—from the market rate in the event of Sweden joining ERM2 if, for instance, Sweden’s monetary policy and cyclical position were to deviate from the euro countries’ prior to Swedish actually joining the monetary union.

The Government may therefore raise the question of membership of the fixed exchange rate mechanism when future participation in the monetary union is judged to be imminent. Government decides exchange rate system, the Riksbank its application As regards ERM2, what are the Government and the Riksbank, respectively, responsible for? The Riksbank Act, amended as of 1999, states that the exchange rate system is decided by the Government and applied by the Riksbank. This is the same arrangement as in virtually the whole of Europe. The decision as to whether and when the krona is to be linked to ERM2 is thus a matter for the Government. The Riksbank in turn determines how the exchange rate system chosen by the Government is to be applied, which involves setting the central rate and band width in a fixed exchange rate system and deciding any interventions. In practice, if Sweden is to participate in ERM2, the law requires the involvement of both the Government and the Riksbank. They must also agree on the conditions. Moreover, ERM2 membership would not be decided unilaterally by Sweden; it is something that has to be negotiated with the other EU countries. n the event of Sweden wishing to join ERM2, what would be the procedure? The negotiations would be conducted in the Economic and Financial Committee, which has succeeded the Monetary Committee. Each country is represented there at the level of under-secretary in the Finance Ministry and central bank deputy governor.
The short-term part concerns dealing with the legacy of the previous financial cycle – that is, repairing bank balance sheets and reintegrating the euro area’s financial markets. This is necessary so that capital can once more flow “downhill” from higher income to lower income  18  Buccirossi et al (2013), “Competition policy and productivity growth: an empirical assessment”, in The Review of Economics and Statistics, October 2013, 95(4). 19  European Commission, Product Market Review 2013: Financing the Real Economy, European Economy 8, 2013. 20  Albertazzi, U. and Marchetti, D. J. (2010), “Credit crunch, flight to quality and evergreening: an analysis of bank-firm relationships after Lehman”, Working paper, Banca d’Italia. BIS central bankers’ speeches  7  countries, and so that banks in those countries are sufficiently capitalised to be able to allocate credit efficiently. The main policy initiative that will support this is the Banking Union project and, as part of that, the ECB’s Comprehensive Assessment. Its aim is to dispel doubts about asset quality and levels of capital and provisions, and in doing so to accelerate the process of deleveraging and restructuring in the banking sector that is the inevitable consequence of a major financial crisis. Over the longer-term, however, it is important that policy-makers also reflect on the quality of financial integration in the euro area – that is, the incentive structures in the financial sector that can lead to inefficient credit allocation, and the channels for sharing risk when financial crises do arise.

This reflected the incomplete nature of financial integration prior to the crisis – based largely based on short-term debt – and in turn unwound the channels for potential risk sharing within the euro area. A study on risk sharing published in 2008 had found that “monetary union has facilitated risk sharing, although the level of risk sharing is still much below the level found among U.S. states”.13 However, a study using a similar methodology in 2013 found that risk sharing through capital markets had virtually collapsed during the crisis.14 With external financing drying up, the catching-up economies faced the risk of a “sudden stop”. They therefore had to pursue both fiscal and structural policies aimed at achieving an internal devaluation so as to restore external balance. And they have been rather successful: since 2009 Greece has almost entirely reversed the ULC growth it experienced in the precrisis period, while good progress has also been made in Spain, Ireland and to a lesser extent Portugal. All the catching-up economies have also experienced remarkable improvements in their current accounts15, ranging from an almost 11 percentage points of GDP correction in Spain to a 16 percentage points of GDP improvement in Greece. However, while internal devaluation may improve the sustainability of the external position, it does not in itself produce sustainable convergence. Indeed, there is a risk that, if unit labour costs (ULC) adjust mainly due to falling wages and the current account closes, policymakers may lack incentives to address the underlying productivity problem.
The Swedish market is too small for companies from other countries to find it profitable to manufacture products especially for us. There may therefore be reason to consider how competition legislation may have greater effects in practice. Increased competition benefits the economy in two ways: by initially contributing indirectly to lower inflation and by stimulating efficiency and new ways of thinking. I believe that one of the problems with the competition legislation may be that the incentives to follow the law are too weak. It is always individuals (company managers, owners) who prepare and make decisions on limiting competition against the provisions of the law, but there is little personal responsibility in the current legislation. Merely sentencing the companies to fines risks creating a situation where it is ultimately the consumers that have to pay a second time; first the cartels' higher prices and then the cost of the cartels' fines. In the USA, it is the responsible decision-makers that are penalised when breaches of the law come to light. The Swedish Competition Authority expresses the opinion in its response to the report by the committee on combating cartels (SOU 2001:74) that the possibility of personal penal responsibility should be considered in Sweden. It makes comparisons with other economic crimes that lead to prison sentences. Increased mobility for ideas, goods, services, work and capital during the 1990s, partly through our membership of the EU, has probably also had a positive effect on growth.

Another method of raising potential growth would be to invest so heavily that the productivity of the labour force increased sufficiently to allow one worker to support one pensioner in the future. Capacity for renewal To summarise, much has changed recently in the Swedish economy. The external framework is currently characterised by a substantial fiscal policy and monetary policy stability, which facilitates planning and decision-making for both households and companies. These fundamental conditions, together with a marked increase in openness to the world around us, give reason to believe in a continued favourable development in productivity. At the same time, one should remember that many markets in Sweden still show clear signs of poor competition. This involves considerable costs. I believe that the Swedish economy has considerable unutilised potential for stronger development if we concentrate on this, i.e. how we shall increase the "speed limit" in the economy. It is not enough to have good macroeconomic conditions; a policy for growth is concerned more with microeconomics than macroeconomics. It is a question of creating good incentives for individuals and people to behave in a rational social manner in their roles as economic agents. What is profitable and attractive behaviour for the individual should also be profitable for the whole. This takes me into the field of politics, which is not part of the Riksbank's responsibilities. However, this is a field where I have been very involved in my previous career roles.
In exchange for being allowed to profit from taking the risks inherent in providing liquidity, or monetary and credit, services to the economy, banks have been subject to prudential regulation; given access to liquidity insurance at the central bank; and required to finance industry-wide insurance schemes to protect depositors. All three components have needed to be redesigned. I offered a few thoughts on the first – the regulation of banks – at the conference on the FSA’s Turner Report a few weeks ago. On microprudential supervision. I wanted to add four  BIS Review 83/2009  1  points. First, that supervisors must be expert, unafraid to substitute their judgment for that of management and the board where necessary, but restrain themselves from doing so except when needed. Second, that concentrated exposures, on either side of the balance sheet, must be limited. Third, that complex structures rendering a bank unsupervisable must not be permitted, as the BCCI crisis taught us nearly twenty years ago. And fourth, that regulatory requirements for capital, liquidity and so on should take into account how much risk a bank brings to the system as a whole. As one of my predecessors, George Blunden said over twenty years ago, “Supervisory standards are set with an eye to protecting [banks] from problems which could be created by wider, systemic developments. A bank may consider a course of action it wishes to take to be acceptable – as it may well be in a limited context.

Aggregate demand has expanded leading, in turn, to acceleration of economic growth, increase in employment and wages, better utilisation of production capacities and improvement of the financial situation of enterprises and households. In parallel, the balance sheets of the banking sector are sound and improving. The key 1/3  BIS central bankers' speeches  parameters of liquidity and capitalisation are above our regulatory requirements, the nonperforming loans ratio is on a clearly downward trend, and the banking sector appears profitable. In addition, as a result of the consolidation process underway in the banking sector, new actors have been introduced to the market – I take this opportunity to welcome them – and premises for fostering competition and efficiency in the banking system are created. Lastly, our stress tests show that this sector is capable – overall – to withstand shocks. This process has been anchored to prudent economic policies: monetary stimulus, fiscal consolidation and prudential supervision and regulatory policies. In particular, let me point out that the Bank of Albania has earnestly worked on the following: Approximation of our regulations to European Union standards and Basel Committee requirements; Improving the supervision architecture of the financial system and strengthening safety nets; Improving the credit environment by facilitating the solution of issues related to nonperforming loans; and, Developing and expanding further the financial and payment systems market.