samchain/econo-pairs-v1 huggingface dataset:
The structural problems, high inflation and speculative behaviour all warranted a realignment of economic policy. In time, the necessity of a change was supported more and more widely. The tax system was reformed and so were certain segments of the transfers system. Sweden also applied for membership of the European Union. Our currency was pegged to the ecu and during the wave of international exchange rate speculation in the autumn of 1992 the krona was defended to the bitter end in order to demonstrate the determination to re-establish a credible low inflation regime. The economic policy realignment coincided, however, with the setback that followed the bursting of the bubble from the late-1980s and the Swedish economy descended into a profound crisis. Whether this dramatic downturn could have been managed somewhat differently is a question that will no doubt be analysed in the future. Some things could certainly have been done differently in the late 1980s, as well as in the throes of the crisis. 1  BIS Review 41/2000  However, I believe that the main lesson to draw is that the roots of the deep crisis ran quite a long way back. A realignment of economic policy was essential. The fact that there had been no credible stability oriented policy regime in Sweden for almost twenty years had had far-reaching repercussions that ultimately affected our material prosperity. It was high time to establish a new anchor for monetary and exchange rate policy, wage formation and economic policy in general.

Everything suggests, moreover, that the economy will continue to impress. Last year, GDP growth was 3.8% and the increase in employment was the highest in the past twenty-five years. Another indication of the good circle in which the Swedish economy is developing at present is that forward-looking GDP assessments have also been revised upwards, whereas forecasts of inflation have not been adjusted upwards to the same degree. Financial market pricing is also a tribute to the present credibility of Swedish economic policy. Who would have believed a decade ago that the Swedish economy would achieve such a favourable path? The successful combination of relatively high GDP growth and low inflation can in principle be attributed to a number of factors. One may be the plentiful supply of unutilised resources after the crisis in the early 1990s. A change in pricing behaviour may have contributed once the rate of inflation had been brought down to a low and stable level. Increased competition in connection with, for example, deregulations, globalisation and IT commerce may also have played a part. But it may also have to do as well with an upward shift in trend productivity, so that more goods and services can be produced without an increase in prices, in other words, a higher rate of potential growth. It can be argued that all these factors have in fact contributed to the favourable development. When the upswing started there were plenty of unutilised resources.
Unlike Norway and Denmark, Sweden has no card network of its own. At the same time, new technology is leading to new, convenient ways of paying becoming available, such as the mobile application Swish, for example. In Sweden, 6.5 million of 10 million inhabitants are connected to Swish. As the rest of society becomes digitalised, demand is increasing for digital payments and, above all, for rapid payments that can be made in real time. For the Riksbank, this means adjusting or complementing the RIX system so that it is able to manage instant payments in a secure and efficient manner. It is important to ensure that all participants involved in payments act under equal and equitable rules. At the moment, we are busy analysing whether we can take advantage of our European cooperation by joining the European Central Bank’s system for instant payments. 4 We are aware, however, that this would mean that part of our infrastructure for payments would thereby end up outside Sweden’s borders and are thus mulling over whether some kind of domestic back-up would be needed and over how the ekrona could be paired with this as a complementary means of payment. This is particularly important as we expect instant payments to become increasingly important in the future. The trend towards a cashless society has also continued – a trend that risks leaving Sweden without functioning cash in the near future. My speech two years ago was part of a proactive strategy to create different alternative courses of action from this trend.

12 Ongoing efforts to recreate safe, transparent and consistent securitisation may, to some extent, support the  supply of safe private collateral. 13 Against this background, rebalancing the euro area fiscal stance towards faster debt reduction in high debt  jurisdictions, and using fiscal space where it is available, would yield benefits for the supply of safe collateral. 14 See e.g. Corradin, S., F. Heider and M. Hoerova (2017), “On collateral: implications for financial stability and  monetary policy”, ECB Working Paper No 2107. 15 See e.g. Mancini, L., A. Ranaldo and J. Wrampelmeyer (2015), “The Euro Interbank Repo Market”, The Review of  Financial Studies, Vol. 29(7), pp. 1747–1779. 16 See the Opinion of the European Central Bank of 8 November 2017 on amendments to the Union framework for  capital requirements of credit institutions and investment firms (CON/2017/46). 17 See Cœuré, B. (2017), “The known unknowns of financial regulation”, panel contribution at the conference on  Rethinking Macroeconomic Policy IV, Washington D.C., 12 October. See also the ongoing FSB-led review of incentives to centrally clear, the Derivatives Assessment Team (DAT). 18 See FSB (2015). 19 See FSB (2017). 10 / 10  BIS central bankers' speeches
This is understandable, given the sheer size of China and, particularly for Asia, where China is now a most important component of an economically integrated region. As I argued earlier, interdependence is synonymous with the transmission of financial shocks, particularly financial contagion. It is therefore in the interests of others  6  BIS Review 66/2004  in Asia to understand China, where the dilemma between pursuing financial openness and the maintenance of financial stability is a most difficult one to resolve. The ability of China to get it right in meeting the many challenges of this task has serious implications for all. And, as I also argued earlier, the dynamics of Asian finance are such that financial crises do not necessarily occur or be most serious at source. The task confronting China is, arguably, a task for others in Asia as well. Whether one adopts the inward-looking attitude of trying to limit possible contagion to the domestic market, or becomes more proactive in contributing, through appropriate assistance and co-operation, to the effective performance of that task in China, or both, is a matter of choice for individual jurisdictions. For Hong Kong Special Administrative Region, which is part of China but operates different banking and monetary systems under the arrangement of “One Country, Two Systems”, we are too close to the Mainland to afford to be inward looking.

Domestic demand for equipment goods could even turn out to be the most severely affected component of final demand. Developments have been slightly different for the construction sector and its most important component, residential investment. Housing construction has been in decline for the past few years, although the cut in interest rates could now halt this trend. All these factors have brought about a sharp deterioration in business confidence, which should put a damper on job creation in our country. Unemployment will start to rise again. Consumption should continue to grow, but at a considerably slower pace. The household sentiment indicator was sharply down at the beginning of the fourth quarter, reflecting expectations of greater job insecurity. In contrast, the unexpected fall in inflation will contribute to an increase in real income, which will support consumption. For 2009 as a whole, the SNB is forecasting a decline in real GDP. This decline is likely to lie between 0.5% and 1%. Changes in monetary and financial conditions As I mentioned in my opening remarks, the target range for the three-month Libor has already been cut by 175 basis points in three steps since our September assessment. These successive cuts were rendered necessary by a number of factors that contributed to a tightening of monetary conditions, whereas the deteriorating general economic environment  2  BIS Review 157/2008  called for relaxation.
The Riksbank has emphasized that one should see the price stability objective in an annual perspective—nothing more precise than that. As to the width of the band, we have started from an interval of +1 per cent, which is fairly normal among countries with an inflation target. Summary The policy with an inflation target has functioned well in Sweden and in other countries that have chosen to work with an inflation target. Inflation has become low. In addition an increased understanding of a policy directed at price stability has been created in Sweden as well as in other countries with an inflation target. This is especially notew orthy because many of the countries which now work with an inflation target are the very same countries that earlier had problems with inflation. When monetary policy is conducted with an inflation target, production and employment are normally stabilised too. For example, increased demand usually implies an increased rate of inflation. When inflation forecasts indicate that a risk for inflation will exceed the target, raising the instrumental rate is warranted, thereby also slowing down demand growth. In practice the room for an active stabilisation policy is circumscribed by the uncertainty about future inflation. Another important complication relates to how credible the policy is. Increased credibility of monetary policy creates more room for both rapidly shifting BIS Review 56/1997  - 10 -  policy in a more expansionary direction in situations of weakening demand and deferring interest rate hikes.

It is important to note that the big changes which occurred in the repo rate and thus in the interest costs of housing in recent years were linked to the transition from the high inflation regime of the seventies and eighties to a regime of price stability. A continued confidence in the low inflation regime would imply that such large changes in the interest rate component are less likely in the future. It is evident from what the Riksbank has said earlier in various contexts that there are price effects, which will not be caught within the tolerance interval and which we do not need to counteract fully by monetary policy measures. Attempts to do so could destabilise the economy further, partly due to time lags in the effects of monetary policy. Consequently, if unexpected disturbances were to occur, or if taxes and subsidies were to be changed, for example in connection with a major change in the tax system, we would have to accept that this would have an immediate effect on the price level. Temporary deviations from the targeted inflation rate may therefore happen. What is important with respect to such deviations is to drive inflation back to the target within the horizon where monetary policy has its biggest effect on price developments. The possibility to achieve the inflation target is accordingly affected not only by how the target variables are defined, but also by what time perspective is used when the policy is evaluated and how wide the applied tolerance level is.
Therefore, Sweden had already learnt the importance of maintaining sustainable deficits and debt levels, and had already imposed many of the public reforms required to deal with structural problems that can inhibit economic recovery. BIS central bankers’ speeches  5  (ii) access to the necessary information and the analytical capability to set policy; and (iii) control over a sufficient set of tools to achieve its mandate. The need for a clear mandate Effective governance arrangements must ensure that the macroprudential agency has a clear mandate. That is, the objectives of macroprudential policy, the tools available to the macroprudential agency and the interaction of macroprudential policy and other public policies must be clearly set out. This is necessary to ensure that: (a) there is no ambiguity about the macroprudential agency’s role; (b) expectations on the agency are in line with what it can achieve; (c) the macroprudential agency can be held accountable for its actions (or lack of action); and (d) any overlaps between policy areas or agencies can be better handled. It may be desirable to set out the macroprudential mandate (and objectives) explicitly because this could make it easier for the macroprudential agency to defend unpopular but necessary interventions. It would also allow policy objectives to be ranked, which would help manage policy trade-offs. However, when setting explicit mandates or objectives in law, care must to be taken to avoid inadvertently constraining policy actions. This is a potential problem because we do not fully understand the variables that influence financial stability.

This is best illustrated by considering the relationship between macroprudential policy and monetary policy. Monetary policy instruments can affect financial stability Monetary policy instruments can have an effect on financial stability. Recently, it has been proposed that monetary policy can affect the build-up of risk in the financial system through the “risk-taking channel”, an independent and previously unrecognised part of the transmission mechanism. 8 There are a number of ways in which (loose) monetary policy is said to encourage risk-taking. Low interest rates can encourage investors to substitute lowyielding, safe assets for higher yielding, riskier assets – the “search for yield”. Investors (such as pension funds) may make this substitution in the hope of attaining returns that match their commitments. 8  The concept of a risk-taking channel was introduced by Claudio Borio and Haibin Zhu in “Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?” BIS Working Paper No.268, 2008. BIS central bankers’ speeches  7  Alternatively, investors may be encouraged to take greater risks if they perceive that monetary policy is being used asymmetrically – that is, that the policy rate is reduced aggressively in the event of a sharp fall in asset prices but the policy rate is not used to address sharp increases in asset prices. Another, more indirect channel, is formed by a feedback loop that amplifies asset price increases and causes banks to increase their holdings of risky assets.
But perhaps equally important is the fact that it has been possible to adjust workforces and wage growth at a local level. First, companies can adapt the use of labour to production by using overtime, part-time positions or contract labour. Moreover, the supply of labour is highly flexible. When demand rises, the number of job-seekers increases. Those who are already employed work more. During upturns, we have in particular observed an increase in labour force participation among young people. Along the same lines, the number of persons in education tends to rise when unemployment is rising. When labour demand increases, we see an influx of job-seekers from our neighbouring countries. In addition, close to 30 000 persons had some form of employment in Norway throughout or during parts of 2001, but resided in Sweden. With the enlargement of the EU, Norway has become part of an extended labour market. Enlargement also provides scope for increased trade in services. This increases the production capacity of the Norwegian economy. For example, it seems that capacity in  1  See Kydland, F.E. and E.C. Prescott (1977): “Rules rather than discretion: The inconsistency of optimal plan”, Journal of Political Economy 85, pp. 473-490. 2  See Akram, Farooq Q. (2003): “Reell likevektsvalutakurs for Norge” (Real equilibrium exchange rate for Norway), Norsk Økonomisk Tidskrift 118, pp. 89-112. 4  BIS Review 21/2005  the construction industry has increased. The activity level is now very high, and there are still no signs of rising wage growth.

The current upturn has lasted about two years. The fairly low level of growth in employment, as measured by the number of employed, must be seen in the light of the sharp decline in sickness absence through 2004. The decrease in sickness absence has reduced the need for new employees. Measured in terms of person-hours worked, employment growth was solid last year. 2  BIS Review 21/2005  Inflation was low in 2004. Underlying inflation rose by 0.3 per cent from 2003 to 2004. The unusually low rise in prices for imported consumer goods over the past few years is partly due to structural developments, primarily changes in Norwegian import patterns. It is difficult to estimate how long the effect of these changes will last. High capacity utilisation, a tighter labour market and higher wage growth imply that the rise in prices for domestically produced goods and services will move up in the years ahead. The projections for the years ahead are based on a gradual rise in the interest rate. This is in line with financial and foreign exchange market expectations. A gradual rise in the interest rate will after a period curb the strong growth in demand, and capacity utilisation in the economy will decline and then stabilise. Economic policy tasks The various components of economic policy have varying effects. This is why they have different functions: •  Monetary policy steers inflation in the medium and long term and can also contribute to smoothing swings in output and employment.
As the Presidents of the European Council, European Commission, Eurogroup and European Central Bank argued in their report, European monetary union, which has so far relied on fiscal rules, will not be complete until it builds mechanisms to share fiscal sovereignty.27 Possible  23  Kenen (1969). 24  This refers to a fall in output relative to potential output. See Chamberlin et al (2013). 25  These estimates are reported in Melitz and Zumer (2002). 26  The Delors Committee (1989) report, which provided the foundation for monetary union in Europe, recognised that market discipline would not be sufficient to ensure that participating countries followed sound fiscal policies, and that fiscal constraints would therefore be required. Beetsma and Uhlig (1999) provide a formal motivation for the resulting stability and growth pact as a device to internalise the costs of inflation that might otherwise result from imprudent fiscal policies. See also Chari and Kehoe (2007). Recent experience demonstrates that overindebtedness can also have costly spillovers through financial crises. 27  See Barroso et al (2012). BIS central bankers’ speeches  7  options range from a transfer union to a pooled employment insurance mechanism. Whatever is ultimately chosen, the degree of fiscal risk sharing will likely have to be significant. Similarly, in a monetary union between an independent Scotland and the rest of the UK the two Parliaments would have to agree on whether fiscal rules were sufficient or whether similar risksharing mechanisms were necessary.

Solvency II allows insurers to apply to the PRA for permission to use a model to calculate their capital requirements. The purpose of these models is to estimate the amount of capital needed to protect the insurer against losses in a ‘1 in 200’ scenario over one year. They are highly complex. Taking the example of a life insurer, a typical model might involve:   Producing a base balance sheet. Many assets and liabilities can be valued without models: for example using market prices. But other valuations are themselves based on models;    Estimating a distribution of outcomes over one year for the material risks to which the insurer is exposed: such as, changes in interest rates, credit spreads, inflation, property prices, longevity, etc;    Assessing to what extent these risks are inter-dependent: for example, asset prices are related to interest rates;    Estimating the impact of the combination of risks to which the insurer is exposed on its balance sheet across many different scenarios;    Taking these outputs and converting them into a simpler set of equations – or proxy model – that relates the insurer’s net assets to a series of risk factor inputs. The purpose of estimating a proxy model is to make it tractable to run many more scenarios. The complexity of the underlying valuation models would make this impractical computationally.
This assessment still applies, and it is gratifying that recent events have confirmed an improvement, although forecasts of the future of course remain uncertain. 8  BIS central bankers’ speeches  Figure 6 Positive signs Purchasing Managers’ Index PMI, manufacturing industry, seasonally-adjusted data 70  70  65  65  60  60  55  55  50  50  45  45 Sweden  40  40  USA EMU  35  35  30  30 06  07  08  09  10  11  12  13  Source: Markit Economics  Uncertainty remains However, apart from uncertainty regarding developments in the euro area there are, to paraphrase Donald Rumsfeld, the former Secretary of Defence of the United States, also other “known unknowns” that may affect the short-term prospects. One example of this is if there is a tangible change in market expectations regarding monetary policy in the United States. Ahead of yesterday’s meeting of the US central bank, the Federal Reserve, long-term interest rates had risen in the United States and Europe, partly due to expectations that the Federal Reserve would reduce its asset purchases and partly due to the more positive signals about the performance of the economy. Share prices have risen in parallel with the rise in interest rates. However, a side effect of the better growth prospects and the expectations of a less expansionary monetary policy in the United States has been that several emerging economies have been hit by capital outflows.

Economic activity improving When it comes to the prospects for higher demand from the euro countries following the debt crisis and all the structural problems, I have become gradually less pessimistic over the last 12 months. This is for example because several highly-indebted countries have made progress in reducing their budget deficits. The Swedish crisis of the 1990s made a great impression on me as an economist and my experience from that period tells me that when households and companies see that the worst problems are over and that the situation is being managed then there is potential for increased confidence about the future, which we have also seen in recent months. This is despite the fact that unemployment is still high and that the recovery of economic activity in these countries is starting from a low level. Of course a lot remains to be done and here the responsibility primarily lies with the politicians in the respective countries. The euro area’s common monetary policy is an important tool for easing the readjustment, but it cannot correct all the causes of the crisis. This requires decisions at the national level in order to come to terms with weak public finances and to change economic and political structures so that competitiveness is improved. It has long been the Riksbank’s assessment that the crisis can be resolved in an orderly way and that economic growth will gradually improve.