samchain/econo-pairs-v1 huggingface dataset:
Gent Sejko: Address to the Parliamentary Committee on Economy and Finance Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Parliamentary Committee on Economy and Finance, Tirana, 23 February 2022. * * * Honourable Chair, Honourable Members of the Committee, Thank you for this public hearing organised in the framework of my nominee for the renovation of the term as the Governor of the Bank of Albania. At the beginning of my address, please allow me to highlight that I am very honoured that the Parliament of Albania re-affirmed the confidence to continue to contribute in the field of Albanian economic and financial area management, as a member of the Bank Albania’s Supervisory Council. In the same spirit, I would like to point out that my nomination for the position as the Governor is motivated by an internal incentive: finalising the thoroughly transformation of the Bank of Albania and turning it in a modern central bank. In my vision, the Bank of Albania should converge towards the conjures of a modern central bank, suitable to be part of the European System of Central Banks; able to deal with the challenges lying ahead in the path of the sustainable economic development, for the comprehensive modernisation of the financial system, for the European integration, and in its function as a reliable partner of Albanian public, civil society and academic world.

Regions and industries in need of private capital and investors requiring adequate returns benefit when money can move across national boundaries without excessive risk or hedging costs. Foreign exchange markets that are more stable and more transparent ultimately will better allow investors to allocate their capital efficiently, thereby improving global economic growth. Change is difficult in any industry and can put enormous stress on individuals. I’m not ignoring this dynamic. However, I am persuaded that, in the long run, what is good for economic growth is in the best interests of the financial community, and, in turn, benefits the individuals that make up that community. Just as U.S. industries went through enormous stress in the 1970s and 1980s in coping with a new era of expanding international trade and emerged in the 1990s as among the most competitive in the world, so too must global financial institutions adapt and find new ways to add value and share in the larger benefits that transparency and reduced volatility can bring. We central bankers can contribute to this process. While we can do little to limit market volatility directly, we can work toward more transparent markets supported by sound infrastructure, and by these means lay the groundwork for market stability. And, while we’re not in the business of determining market rates or the ranges in which rates should trade, what we are trying to do is move increasingly toward improving the transparency of our own operations as an end in and of itself.
Some caveats are required here. In the survey responses there was an under-representation of younger firms. This makes the results less informative about the investment behaviour and financing needs of younger companies, particularly of start-ups. Moreover, as this is the first time such a survey has been carried out, we cannot evaluate the results through time to see whether and how firms' approach to investment has changed over the years. And of course the survey reflects the subjective judgments of the firms that responded. These need to be evaluated against the harder, aggregate data on investment. That said, the survey sheds light on a number of interesting aspects of firms’ behaviour and on the availability of finance for investment, which may go some way to explain the weakness of investment since the crisis. I want today to concentrate on two of these. First, the reasons why around a third of the companies surveyed believed they had underinvested over the past five years. And second, whether the rates of return firms require to invest suggest that there is now a greater risk premium that may be leading to lower investment more generally. The ‘Underinvestors’  One of main motivations for the survey was to shed light on whether the cost or availability of finance was acting as a constraint on investment. Corporate borrowing in general crashed following the financial crisis. This was clearly due to constraints on the supply of finance as well as a marked reduction in demand.

Options provided to firms include: distribution to shareholders includes dividends and share buybacks. Purchasing financial assets includes M&A. Source: Bank of England Finance and Investment Decisions survey. And, on a related question, 80% of all the publicly owned firms agreed that financial market pressure for short-term returns to shareholders had been an obstacle to investment. Somewhat surprisingly, a significant proportion of the privately owned firms in the survey also saw financial market pressures as an obstacle to investment. This implies perhaps that financial market pressures for returns have a more general effect on the way investment returns are viewed by firms. The underinvesting firms also faced non-financial obstacles. Chief amongst these were greater risk aversion and greater uncertainty about the economic environment, which may include uncertainty about the returns to investment. I want to deal with these under my second set of observations around rates of return. At this stage, however, it is worth noting that for the group that underinvested, non-financial obstacles seem to have played as big a role as financial ones in their investment decisions. And, when looking at constraints on finance, using profits to finance investment appeared as important as constraints on borrowing. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  As I noted earlier, the question of constraints on finance for investment in the UK has deep roots.
The nature of the run-up to the crisis has been well-documented, so let me focus here on the latter two phases: the crisis and convalescence. During the crisis, weakness in the housing market contributed to financial strains as many families found that their mortgages were “underwater,” that is, their homes were now worth less than their mortgage balances. As a result, they had no financial buffer they could tap if their finances came under stress. And, as the economy weakened further, many households faced sharply reduced incomes as family members lost their jobs or had their work hours cut. So, more families found it difficult to pay their credit card bills and other debt obligations on time. As a consequence of these strains, households began the painful process of deleveraging. They started reducing the amount of debt they owed, relative to their income. During the runup to the recession, households were saving only about 2 percent of their income; now they are saving around 6 percent of their incomes. This increase in saving was mostly used to pay down their debts, but it also included adding to their savings accounts and borrowing less. Of course some of the reduction in debt reflects loan charge-offs of bad debts. But work done here with the Consumer Credit Panel shows that some consumers also became more frugal, rebuilding their net wealth by paying down their debts.

Once the adjustments are completed, households can consume more and regain their access to credit, and these developments help to support a more vigorous economic recovery. Of course, we don’t yet know precisely where we are in this adjustment process. For example, families may choose a permanently higher rate of saving in order to rebuild their retirement savings. What they decide to do will depend in part on their expectations for future income, their outlook for the economy, what they think will happen to housing and stock prices, and prospects for taxes and benefits such as social security and Medicare payments. However, we do know that during good times few households are likely to be delinquent on  4  BIS central bankers’ speeches  their bills. And, overall, we’d expect their borrowing to grow at least modestly as the economy strengthens. The Household Debt and Credit Report released today indicates that there has been a pickup in credit flows. Households increased their non-mortgage debt last quarter, a development not seen since the fourth quarter of 2008. The number of credit card applications increased – an indication of a pick-up in consumer demand for credit. And, the number of open credit card accounts also increased slightly – as more accounts were opened than were closed. Of course, signs of distress continued: households are still reducing their housing-related debt and delinquencies continue to be a problem. So, the adjustments remain far from complete.
I know the Bank will continue to do just that under Mark’s leadership. Mark inherits a wealth of young talent in the Bank, led by three outstanding Deputy Governors: Charlie Bean, Andrew  4  BIS central bankers’ speeches  Bailey and, of course, Paul Tucker, who has made an enormous contribution to the Bank over three decades. The Bank of England is in safe hands, and the country will be the better for it. Lord Mayor, the wheel may have come off your carriage at last year’s installation, but then we saw your characteristic ability to turn every situation to advantage as you returned in triumph to Mansion House in a Land Rover. As the City too faces the challenge of turning disaster into triumph, it would do well to follow your example of how to “treat those two imposters just the same”. Roger, your commitment to the promotion of the creative industries – crucial to this, the most exciting city in the world – as well as opportunities for children, aspiring musicians, even trees and bicycles, is well known. And all of us here tonight would like to pay tribute to you Lord Mayor, and to thank the Lady Mayoress, Clare, and yourself, Roger, for the splendid hospitality which you’ve extended to us all this evening. So I invite you all to rise and join me in the traditional toast of good health and prosperity to “The Lord Mayor and the Lady Mayoress, Roger and Clare Gifford”. BIS central bankers’ speeches  5

These longer-term money market rates are important to U.S. domestic activity to be sure, but they are also of significance abroad, especially in countries with highly trade-oriented economies. In this regard, we have seen continued growth in recent years in the stock of loans linked to U.S.-dollar LIBOR made to non-U.S. firms. As shown in Figure 14, the Desk estimates that U.S.-dollar cross-border bank loans to non-U.S. residents that could be directly or indirectly impacted by U.S.-dollar LIBOR—the sum of the three columns in the panel—total about $ trillion, a significant portion of which is in developing economies. This reflects both the deep,  10  liquid, and global nature of U.S. financial markets, as well as the dollar’s role as a reserve currency and the primary currency used for international trade. My assessment is that the increased supply of Treasury bills and shorter-term Treasury coupon securities has played an important role in putting upward pressure on these rates at times. I think there is also evidence that other policy drivers have played an important role. For example, the recently enacted Tax Cuts and Jobs Act (TCJA) provides for “deemed repatriation” of corporate profits that had not yet been subjected to taxation in the United States. It appears that some corporations that previously had significant untaxed earnings—and that previously held large stocks of cash on their balance sheets—have begun to alter their capital structures, either by distributing cash held on balance sheet as dividends or by investing it in other assets.
In this respect, both public speeches and testimonies by the President of the ECB to the attention of the European Institutions and public opinion, as well as those by the Governors of National Central Banks to the attention of national Institutions and public opinion, are of vital significance. Indeed, a crucial part of our collective duty consists in tirelessly explaining the reasons and the arguments that underpin the decisions of the Governing Council. In December 2000, the Eurosystem decided to release, for the first time, its euro area economic staff projections, with a view to improving transparency and communication. 2  BIS Review 96/2001  Thus, from the point of view of the accountability of the central bank in a democratic society – that is to say the duty to explain, justify, convince, whenever possible, and take full responsibility vis-à-vis public opinion for decisions taken –, the Eurosystem strives to meet the highest standards of the main central banks in the world. 2. The euro significantly contributes to growth in Europe by enhancing the co-ordination of economic policies  A few years ago, it was necessary to convince a great number of sceptics, in Europe as well as in the rest of the world, that the euro would really be launched. Many observers believed that the single monetary policy would never succeed ! Facts have disproved this conclusion. However, other observers still sometimes evoke the supposed fragility of the euro area stemming from the supposed economic and structural divergences between euro area countries.

How can we answer this important question? Firstly, monetary union does not necessarily imply that, at any given point in time, all participating countries will have the same rate of inflation or growth, even though the creation of the euro was based on the successful completion of a convergence process. Let us take inflation for example. Inflation divergences across countries or regions are quite natural in a monetary union. In the euro area, long-term convergence to a common level of prices naturally gives rise to different inflation rates across countries. The convergence of productivity and living standards creates a trend towards price convergence. Now, present differentials in the Euro area are not very large, in comparison with those sometimes observed in the United States, which is a long established monetary union of comparable size. My intimate conviction is that we will witness further European integration and, in the medium term, an increasing correlation of economic developments in the area. Several academic studies show that business cycles are becoming more synchronous across Europe. Secondly, the question has often been raised as to whether EMU can be a success without some form of enhanced political union. Indeed, to achieve this, the correct mix is required between fiscal, economic and monetary policies. In the European Union, Member States are responsible for conducting economic and fiscal policies. We therefore believe that these policies should be closely co-ordinated.
If, as I argued, financial market fragmentation in Asia leads to individual vulnerability to financial instability, and through contagion regional vulnerability, then one intuitive solution is to integrate the fragmented markets through some form of monetary union. Admittedly, a monetary union does not remove all sources of financial instability in the region, which could arise from volatile business cycles, for example, boom and bust induced by inappropriate policies, and moral hazard induced, for example, by implicit government-guarantee of bad credit. But it does take care of financial instability associated with volatile capital flows and the associated large swings in real exchange rates. But, as of now, this is still not an item on the agenda of Asian monetary co-operation, at least in any official forum that I am aware of. As far as I can recall, there have only been some limited efforts of mutual assistance: •  The first is the collection of EMEAP bilateral swap facilities that provide US dollar liquidity secured against US Treasury securities that were put together in November 1995, which have not been used;  •  The second is the idea originating from Japan in 1997 for an Asian Monetary Fund, which did not go beyond being an idea; and  •  The third is the collection of ASEAN+3 bilateral swap arrangements (between the US dollar and domestic currencies) under the Chiang Mai Initiative, which involve the assumption of credit risks. There is, in fact, continued scepticism towards any form of monetary union in Asia.

As Jens Weidmann and I wrote last year, the equity financing of businesses, across European borders, must be a priority. Europe is lagging far behind in this area: such financing only represents 67% of GDP in the euro area compared with 125% in the United States. Thus, innovation, which is inherently more risky, is less well financed in Europe. The second project, on which we could make progress after the elections that will take place this year, is a collective economic strategy in the euro area. I know that when the French talk about coordination in Europe, the Germans sometimes think that it may be a new way to wriggle out of reforms. This deadlock must be broken: we need both national reforms and a European coordination. Growth and employment would be stronger in Europe with more structural reforms where they are a priority, such as in France and Italy, and more fiscal or wage support in countries with room for manoeuvre, such as Germany. Regarding reforms, like you, I would like France to pick up the pace; I say it frequently in my own country. But you must not consider that your French neighbour is “unreformable”. France has not been immobile over the past few years: pensions have been reformed, corporate charges have been cut considerably, and deficit reduction targets have been met. In practice, in order for this European coordination to exist, the euro area needs an institution that inspires confidence between countries.
Against the backdrop of a dramatic appreciation of the Swiss franc, the Swiss National Bank resorted mainly to interventions in the foreign exchange market, supplemented for a while by a minimum exchange rate for the Swiss franc against the euro. Since the discontinuation of this minimum exchange rate, the SNB has charged interest – known as negative interest – on the sight deposits of banks. The aim of all these measures has been to stabilise price developments and to support economic activity. The financial crisis has had the effect of generally raising the level of public interest in monetary issues – not least the question of how, given the strong expansion of liquidity, the interaction between central banks, banks and the public affects money and credit aggregates. 1 For obvious reasons, the financial crisis also spurred debate in the world of financial market regulation, with central banks and financial market supervisory authorities grappling with weaknesses exposed by the crisis. Their conclusions are reflected in the new international minimum requirements known as Basel III, as well as in supplementary national regulations. The most important adjustments include stricter capital requirements and the introduction of international liquidity standards for banks. Some radical proposals have also gained traction as a result of the crisis. In Switzerland, the sovereign money initiative attracted enough signatures to ensure a popular vote. The initiative demands that the creation of money and the granting of loans be separated by barring commercial banks from creating deposits through lending.

We are also aided by the fact that we are more reliant on traditional banking rather than the capital markets for our debt financing. Beyond the direct impact on banks, the general reduction in risk capital and financial deleveraging will be felt in Asia, through higher costs of capital. This is the downside that many companies and investors will have to confront. On the upside, this should further spur the efforts of Asian countries to make their own financial intermediation process more efficient. This can be done through a lowering of barriers to global capital and the building of channels to facilitate the growth of this capital. Global investors will increasingly look to Asia for investments as Asia remains an attractive area for growth in the long term. On the other hand, Asian companies will continue to require funds as they extend their global footprint. In this regard, lessons from the subprime crisis are timely. As Asian capital markets evolve, investors and risk managers alike will need to understand the innovations and the products as they develop. I believe that some key issues in the securitization markets will also have to be addressed, such as in origination standards. How investor confidence is restored will shape the ability of companies to tap capital market solutions in the near future. US recession and Asia’s growth story Let me now turn to the third issue, which is the impact of the US recession on Asia.
If Norges Bank pursues objectives it does not have the instruments to fulfil, confidence in monetary policy may be eroded. The regulation and supervision of financial institutions must be the primary means of addressing shocks to the financial system. Employment levels over time are determined by structural conditions, such as the functioning of the labour market, the tax and social security system and the wage formation process. In Norway, a well-functioning wage formation process has enabled unemployment to remain low while wage growth has remained moderate. The new regulation underpins Norges Bank’s flexible approach to inflation targeting. In the conduct of monetary policy, substantial weight will continue to be given to the real economy. In this context, whether the inflation target is 2.5 percent or 2 percent is less important. At 2 percent, the inflation target is now at the same level as that of most of Norway’s trading partners. The reduction of the target will not in itself significantly affect the short-term interest rate outlook. Never before have global interest rates been as low for such a long period. Growth abroad has now picked up, and there are prospects of a gradual interest rate increase among Norway’s 3/4  BIS central bankers' speeches  trading partners. The outlook is also brighter in Norway. In the two years since the cyclical trough was reached, growth has gained a firm footing and the unemployment rate has declined.

Chart: Mainland GDP  1/4  BIS central bankers' speeches  In Norway, growth in the mainland economy picked up through 2017 and the economic outlook improved. Low interest rates, improved competitiveness and an expansionary fiscal stance contributed to the upturn, while oil investment declined at a slower pace after falling sharply for several years. Although the activity level in the Norwegian economy was still somewhat below a normal level, the economy was emerging from the downturn that followed in the wake of the fall in oil prices in 2014. Employment was rising and unemployment was falling. The improvement in the labour market was reflected in a moderate increase in wage growth, which in the preceding years had been restrained by the decline in oil prices, lower capacity utilisation and lower underlying productivity growth. Chart: Consumer prices The depreciation of the krone following the sharp fall in oil prices in 2014 and 2015 gradually fed through to prices and resulted in higher inflation. As this effect faded and the krone appreciated, inflation fell back. Both low imported inflation and weak cost growth in the Norwegian economy contributed to low inflation in 2017. Underlying inflation remains below target, but prospects for higher levels of activity and slightly higher wage growth indicate that inflation will rise in the period ahead. Chart: Debt ratio and interest burden Elevated house price inflation and high debt growth have increased household sector vulnerabilities. After rising faster than household income for several years, house prices began to fall in April 2017.