samchain/econo-pairs-v1 huggingface dataset:
8  See Menéndez and Mulino (2022). “Results of non-financial corporations to 2022 Q2”, Analytical Articles, Economic Bulletin 3/2022, Banco de España. 3  recipients of liquefied gas, including Spain, are unable to transport it to the Central European countries that have been cut off by Russia from its gas supply. Third, the surge in gas prices observed in the Dutch TTF market, Europe’s benchmark, has intensified the reduction in consumption. Between March and June, it had declined by 10% in Europe as whole and, therefore, must accelerate to reach the goal set. As a result, 84% of European storage capacity was in use in September, meaning that it is above the 80% target set for early October. Despite the headway made, how much time will Europe need to wean itself off Russian gas? As I mentioned earlier, this will depend on many factors, including increasing the amount of liquefied gas that can be shipped to Europe, its regasification and subsequent distribution to where it will be consumed, the pace at which technical advances leading to energy efficiency gains occur (and are subsequently adopted), and the possibility of expanding the use of other energy sources, particularly renewables. It is also true that the economic consequences of the war affect countries unevenly, depending on their different levels of dependence on Russian gas.9 However, given the surge in energy prices and European economic integration, economies such as Spain, that depend relatively little on Russian supplies, will also be affected.

The first relates to the institutional relationship between the central bank and the government and the second to the multiple objectives assigned to the central banks. All the evidence points to improved long-term inflation performance when monetary policymakers are freed from institutional constraints that hamper their freedom of maneuver and given full operational independence. Such independence is best achieved by enshrining it in an institutional framework that provides for legal independence from the government, with accountability for achieving a clearly defined mandate focused on price stability. Few Asian central banks yet enjoy full legal independence, though most now have greater de facto independence than they once had. Fixed, or partially fixed exchange rate regimes, of course, also constrain the independence of monetary policy. As capital accounts become progressively more open, few countries can sustain over time a commitment to exchange rate stability without risking price stability. Eventually central banks will run up against limits on their capacity to sterilize the effects of exchange market intervention designed to limit the pace and extent of appreciation of the exchange rate. Although measured inflation in emerging Asian economies remains relatively low, the pace of credit growth and the behavior of asset prices provide some evidence of a growing tension among competing objectives. The longer this policy conflict persists, the greater the distortions building up in the economy, the greater the risk of future inflation and the greater the risk of a bumpy future.
Public and private sector debt has fallen steeply relative to income in the past few years. Our banks are robust, with high capital ratios and abundant liquidity, and the Central Bank’s newly published stress test indicates that they can withstand much more severe shocks than we currently consider likely. Unlike many other advanced countries, we have considerable scope for economic policy to respond to shocks, as Central Bank interest rates are well above zero and the government is operating at a surplus and is relatively well positioned with regard to debt. The exchange rate of the króna is still strong, although it has fallen in the recent term, and the real exchange rate is estimated to be broadly as it was in late summer 2016. All in all, it can be said that our position is still relatively good, and nothing has yet happened to give cause for deep-seated pessimism. Yesterday the Bank announced a 0.25% increase in its key interest rate, to 4.5%. This rate hike was decided in view of economic developments and prospects, including those described in the Bank’s new forecast, and in view of the considerable decline in the Bank’s real rate in recent months, which stems from rising inflation and inflation expectations. One of the factors the Monetary Policy Committee considers when it assesses the monetary stance is the Central Bank’s real rate in terms of various measures of inflation and inflation expectations.

This also means that the equilibrium exchange rate of the króna has probably fallen in the recent past, which in turn may partially explain the recent depreciation of the króna. The deterioration in external conditions is not good news, of course, but we must place it in the context of the substantial improvement that has taken place in recent years. On the whole, however, this turning point is positive in a number of ways. The growth rate of the past few years was unsustainable, and it tested the capacity limits of the domestic economy. According to the Central Bank forecast published yesterday, the landing will be a soft one. GDP growth will measure 2.6% over the next three years, close to the average level that will allow the economy to grow without importing labour. The positive output gap will narrow gradually and close by the end of the forecast horizon, which is in 2021. There will be virtually full employment for the entire period, and purchasing power will continue to rise. Inflation will rise above the target in 2019 but then remain close to the target for the rest of the forecast horizon, partly because the forecast assumes that interest rates will rise when inflation does. Some observers might say that this is too good to be true. It could turn out that way, of course, but that would be because known or unknown risks not included in the forecast had materialised. There are so many things that could happen in this regard.
In essence, this is what the ECB has been doing through its “monetary analysis”, as a key rationale for its close monitoring of money and credit aggregates has precisely been to keep track of the evolution of medium-to-long-term tail risks which simply do not map onto the central projection for inflation. Let me now turn to another lesson of the crisis, namely the practical relevance of the zero lower bound for monetary policy purposes. II.4. The zero lower bound is a relevant issue for contemporary monetary policy  For many years before the crisis, the general consensus within both academia and the central banking community had been that the zero lower bound (henceforth, ZLB) and the associated problem of the liquidity trap, in which conventional monetary policy – that is, the one associated with setting short-term interest rates – all but loses its ability to impact upon the economy, were issues of mainly historical interest. Japan’s recent experience with the ZLB, and its difficulty in extricating itself from a liquidity trap situation, presented a troubling counter-argument to this position, but that could be “explained away” as the result of a series of policy mistakes on the part of Japanese policymakers. As a consequence of the financial crisis, there is, today, a generalized recognition that the ZLB may be a much more significant problem for monetary policy than previously thought.

The reason for decisions resting on forward-looking assessments of inflation is that monetary policy has an effect with some time lag. The major part of the effect of an interest rate change is expected to occur after one to two years although monetary policy is assumed to have some effect before and after this time horizon. The channels that allow monetary policy to have an effect on inflation are assumed to a large extent to operate through the output gap which means that a change in interest rates will first affect resource use which will then only have a tangible effect on inflation later. Normally, inflation assessment puts most weight on the next one to two years in the conduct of monetary policy. However, the perspective that monetary policy aims at also depends on the expected economic situation. If inflation diverges considerably from the objective in the coming period, this may weigh more heavily than a small deviation later on. Likewise, an anticipated higher or lower inflation after the one-to-two year perspective can be weighed in. Since the impact of a change in interest rates on inflation in the first year can be assumed to be small, large changes in interest rates are required to have an effect on inflation already in the first year. Attempts to affect inflation already within a year would in the view of the Riksbank lead to major fluctuations in employment and production.
Most Singapore-listed firms continued to hold sufficient liquidity as of end last year, with liquid assets such as cash and equivalents exceeding their short-term liabilities. MAS’ stress tests on the balance sheets of SGX-listed firms show that most corporates would be resilient to interest rate and earnings shocks. For households, the measures put in place by MAS over the years have helped to ensure prudent borrowing. The Total Debt Servicing Ratio (TDSR) caps a mortgage borrower’s overall debt obligations at 55% of his income. It is computed using an interest rate which is the higher of 3.5% or the prevailing market rate to calculate mortgage obligations, providing a buffer amidst a rise in interest rates, such as what we are seeing now. The Loan-to-Value (LTV) ratio limits mortgage borrowing to 75% of the value of the house for the first property loan, 45% for the second loan, and 35% for the third. Total unsecured debt is limited to 12 times a borrower’s monthly income. Taken as a whole, Singapore has among the strictest limits in the world on household borrowing. The household debt situation in Singapore remains generally healthy. Stress tests by MAS suggest that most households should be able to service their debts even under scenarios of sharp interest rate hikes and significant income losses. The median TDSR for new loans issued over the past year is 43%, and the median LTV ratio for the outstanding stock of mortgages as of Q1 2022 is less than 50%.

My perspective in pursuing these questions is not as overseer, or as policy maker, but as practitioner. Recall that following the designation by the Financial Stability Oversight Council (FSOC) of eight private sector financial market utilities as systemically important in 2012, the Board of Governors, acting in its oversight capacity (and inestimable wisdom! ), committed to hold the wholesale services operated by the Reserve Banks to “as high or higher a standard” as it holds these private sector utilities; I assure you, we are experiencing, appropriately, that “or higher” side of the spectrum. Like our infrastructure peers we are challenged to maintain the integrity of existing operations while contending with a brave new world; constrained by the demands of cost recovery and limited resources; challenged by the multiplicity of risk and compliance frameworks with which to comply and governance and stakeholder bodies to satisfy; conscious that we have to defend across an extended front while our adversary need only find a single point of entry; and keenly aware that we must be perfect every day, our foe successful but once. These are heavy burdens; I speak not to you, but of you. With that context these remarks (I assure) reflect my own views and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.
When we set interest rates, we must always assess the risk of another sharp rise in cost inflation when the labour market tightens. High economic growth often leads to a sharp rise in asset prices and debt. Long periods marked by such developments may be a source of future instability in the real economy. When activity is high and household income expectations are high, asset prices and debt may increase rapidly. Expectations of high corporate profits may stimulate investment and lead to higher equity prices. Such an upswing may result in an increased willingness to take risk among both households and companies. They then become more vulnerable to a future downturn. Since the mid-1990s, debt and house prices have shown a marked increase in Norway. Initially and perhaps for a period, this may be viewed to some extent as a delayed adaptation to the deregulation of the housing and credit markets in the mid-1980s after households had burned their fingers in the first years following the deregulation. Mortgage loan products have since been further developed. Household income has risen considerably in recent years, and household optimism about the future is unusually strong, which may also have contributed to increased demand for loans and the rise in house prices. In addition, expectations of persistently low real interest rates over time may have provided an additional boost to house prices.

The integration of new emerging economies such as China and India into world trade, in conjunction with lower tariffs and reduced trade barriers, has contributed to a decline in prices for imported finished goods. This development has probably been most noticeable for clothing and footwear and audiovisual equipment. New producer countries with very low cost levels and increasingly more efficient production have contributed to a low rise in prices for other goods as well. Global competition has intensified and productivity growth has been high both in Norway and abroad. Competition has also increased in Norway in a number of industries. The airline industry has perhaps been in particular focus, where the entry of the airline Norwegian in the Norwegian market has resulted in substantially lower air fares. In the retail trade we have also witnessed the impact of more efficient purchasing schemes, a larger number of chains and intensified competition. Margins and prices are falling in the financial industry. The rise in prices, for example in the hotel and restaurant industry, is surprisingly low. In the labour market, we see traces of increased competition and a more flexible supply of labour as a result of the accession of new countries to the EU and greater mobility in the international labour force. These developments may have contributed to keeping wage growth at a lower level than would otherwise have been the case.
This correction has also affected the establishment of more steady balances of the demand and supply for foreign currency in this period. Notwithstanding these encouraging developments, lending activity at home remains far from its potentiality, responding to the lower demand for banking loans and the tightened lending conditions as applied from banks. Lending to private sector marked an annual growth of 4% in real terms, providing an annual growth of 7.8 percent of monetary supply in January. All denominated credit continues to rule the lending activity, which mainly covers the businesses’ needs for circulating capital. January 2010 embodied a particularity, that is the improved state of the banking system assets denominated in foreign currency, has started to be mirrored on the growth of credit denominated in foreign currency. Notwithstanding, the stable increase of lending should be assisted by the re-activation of the demand for loans and the parallel easing of lending conditions as applied from the banking system. Bank of Albania deems that banking system should reveal more visionary in assessing potential sectors of economic growth and to take a more active role in encouraging the economic activity. Annual inflation in February 2010 pointed to 4.4%, exceeding by 0.4 percentage points the upper limit of the Bank of Albania target’s tolerance. The annual average inflation pointed to 2.6%.

In some cases these might amount to tweaks to avoid unintended consequences; in other cases they will be in response to further evolution in the market itself. And although crystal ball gazing is always a perilous exercise, if you take the agenda for this conference as a guide, then one area likely to remain in focus in coming years is transparency. 5  http://www.globalfxc.org/consultative_process.htm 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  On the one hand the demand for market data will only continue to rise – for example, as end users demand transaction cost analysis tools and analytics to measure the quality of their execution and to predict the optimal time to execute trades. But on the other hand, growing market complexity and greater internalisation of flows tend naturally to reduce the ease with which such data can be accessed. So it’s not hard to imagine that post-trade transparency as one of the areas where further guidance may eventually be needed. Securing success  So far I have focussed on activities: encouraging firms to commit to the Code, investing to ensure it continues to provide up-to-date guidance. Ultimately though, the success of the Code will be judged on outcomes. The aim is to improve market practice and rebuild trust in the FX market – that is what the BIS Governors will be looking at when they come to review progress in three years’ time. Those outcomes are difficult to measure.
Well firstly, let’s turn our attention to market risk. Are banks’ risk appetite appropriately calibrated here? Despite limits and controls becoming more sophisticated, are they focused on the right risks? Whilst gross exposure risks are now generally captured, more often than not, their risk profile is assessed through the lens of historical time series. The risk is that the absolute scale of positions, which may well be appropriate for market liquidity conditions so far, might be outsized tomorrow. Page 4  Next, let’s look at the risk from client and counterparty default. Given that since the global financial crisis the balance of direct risk-taking in specific products has shifted away from investment banks to their clients, counterparty risk is greater than ever before. Today, the bigger risk to investment banks is not from their proprietary positions, but from the aggregate exposures of their clients. Clearly losses from counterparty risk are not new. During the Global Financial Crisis losses from counterparty defaults totalled over $ But these losses were overshadowed by banks’ own losses of nearly $ from principal positions. The Global Financial Crisis however taught us that it was concentrations that present a great danger in firms’ counterparty risks. 70% of counterparty losses in the Crisis came from similar uncollateralised CDS exposures to a small number of monoline insurers. These risk concentrations were not well managed or controlled. Unfortunately we have again seen banks’ counterparty risk concentrations not appropriately identified or controlled.

For sure, potential output estimates are chronically unreliable and often subject to substantial revisions ex post. Faced with the despair of failure, we often tend to underestimate our ability to overcome crises – a phenomenon I will return to in a minute. Moreover, recessions often tend to have a permanent effect on the level of potential output. It is much less clear, however, whether the crisis will also leave a permanent footprint on the trend 1/9  BIS central bankers' speeches  potential growth rate – something Laurence Ball called “super-hysteresis” effects. In fact, on the right-hand side of the first slide you can see that potential output growth had been slowing in the euro area well before the crisis, mainly reflecting a long-term slowdown in total factor productivity (TFP). So the question I would like to ask today is not so much why potential output growth appears to be decelerating in the long run, or whether we are entering a period of secular stagnation – the jury is still out on this. It is whether the crisis, and the persistent shortfall in aggregate demand, has accelerated, or not, the decline in potential growth. The first point to consider is whether the crisis has had a significant effect on labour participation – that is, the size of the total labour force. Hysteresis effects might be caused by unemployed workers becoming discouraged and discontinuing their search for employment, leading them to become detached from the workforce and lose their skills over time.
In the coming  1  When these countries are weighed together in relation to their significance for Swedish foreign trade using the KIX index, the euro area accounts for almost 50 per cent. BIS central bankers’ speeches  1  period, domestic demand is expected to continue to strengthen, at the same time as the economic improvement abroad will help exports to gradually pick up. When growth in Sweden accelerates, unemployment is also expected to fall. All in all, we see a fairly clear improvement in economic activity ahead of us. …but inflation is too low The Swedish economy’s international dependence applies not only to the real economy, but also to inflation. It is clear that inflation in several of our important export regions has shown a downward trend in recent years (see Figure 1). Given this, central banks abroad have conducted a very expansionary monetary policy. In our most recent assessment in July we also revised down our forecasts for policy rates abroad (see Figure 2). The low inflationary pressures abroad are one explanation why inflation in Sweden has been low in recent years. When measured as the CPIF, where the effects of the Riksbank’s repo-rate changes on mortgage rates are excluded, inflation has been clearly below the target of 2 per cent since the start of 2012, and since the end of last year it has fallen further (see Figure 3).

One indication that the low inflation is a global phenomenon is that most central banks with inflation targets experienced inflation undershooting the target last year (see Figure 4). However, inflation abroad is not the only explanation for the low inflation in Sweden. The exchange rate is significant for how prices abroad are “translated” into prices for Swedish import goods. During the financial crisis in autumn 2008, the krona depreciated substantially, but after that there was a fairly long period with a clear appreciation, which contributed to pushing down import prices in Sweden. But over the past year the trend has levelled off, and the krona has even weakened slightly so far this year (see Figure 5). The development of the krona is therefore probably mainly a partial explanation for the earlier low inflation, and is less so now. A further explanation for the low inflation in Sweden is that the uncertain economic climate in the wake of the European debt crisis has meant that companies have not been able to pass on cost increases to consumer prices in the same way as before. Moreover, their margins have been squeezed by the stiff competition.2 This picture is confirmed by the preliminary results of the survey we made together with the National Institute of Economic Research, where we asked 1,500 companies in mainly the services, retail and construction industries what factors have significance for their pricing.3 But inflation in Sweden has repeatedly been lower than both the Riksbank and market analysts have expected (see Figure 6).