samchain/econo-pairs-v1 huggingface dataset:
In spite of everything, there has been little demand for overdraft loans, which is a positive sign. Household debt has held relatively stable at around 150% of disposable income, far below the level in most neighbouring countries. Now, however, there are signs that negative real rates have given legal entities an incentive to borrow: in 2022, the three large banks' corporate lending grew by some 200 b.kr. Perhaps this should come as no surprise after the downturn in investment during the COVID years. Trying to boost output is a natural response to strong demand. Corporate debt has not risen as a share of GDP in recent years, however, and in general, most companies' equity is strong. The fact is that the Icelandic economy is in robust good health with its renewed emphasis on exports. The tale of inflation in the 1970s highlights how important it is that the Central Bank be able to increase real interest rates so that the inflation boogeyman doesn't gain further strength and plunge us into a new inflation vortex. This is the main reason the Bank's Monetary Policy Committee decided last week to raise the policy rate by 1 percentage point. Investment is on the rise, and without doubt, the projects that await are valuable. But we cannot do everything at once. Negative real interest rates are actually a form of subsidy, and they create abnormally strong demand for credit, thereby exacerbating the risk of inappropriate or inefficient allocation of capital.

1 Given the problems in defining and measuring financial stability, why should we pay any attention to it? One answer is that we simply cannot afford not to do so, as financial crises carry with them huge costs to society. This was shown by events in Japan and the Nordic countries during the early 1990s, and in much of South East Asia in 1997. In fact, one could even claim, that financial stability takes precedence over price stability, in the sense that the latter is quite irrelevant if the financial system is on the brink of collapse. An important difference between price stability and financial stability is that while responsibility for price stability rests squarely on the central bank, financial stability necessitates the cooperation of the central bank, supervisors and the government. However, the exact roles played by different authorities differ from country to country. Another difference is the number of instruments available to policy makers. In the case of price stability, there basically exist one instrument (either the short-term interest rate or the nominal exchange rate). Maintaining financial stability, on the other hand, requires a wide spectrum of policy measures, such as professional supervision, a legal framework that does not encourage “moral hazard”-type behaviour and crisis management plans. A recent complication is the surge in cross border banking activities, which means that the national authorities engaged in financial stability work, increasingly must work with their foreign colleagues.
The answer is that many activities cannot do without forecasts as a basis for their planning. The spring budget bill that was presented recently is, for example, based on a macroeconomic forecast of the levels of central government income and expenditure in the years ahead and the potential scope for reforms that will therefore be available. Forecasts of different kinds also play a practical role for the planning of companies, even though they may not call their underlying assessments forecasts. Financial investors, who are better able than others to forecast macroeconomic developments, have an advantage in the search for yield as financial prices such as interest rates, exchange rates and share prices are strongly affected by business cycle developments. A final but important example concerns households who, when planning to  BIS central bankers’ speeches  1  buy a home, largely base their decision on what they believe about the development of interest rates in the future. Although forecasts are seldom entirely correct, I would still say that they are often correct enough to provide a reasonable basis for planning. It is mainly in connection with turning points in economic activity and with different types of crisis that forecasts prove to be wrong. On the other hand, we should be aware that forecasts are predictions of what will happen in the future and are therefore shrouded in uncertainty. We must always be prepared to change our course of action if events move in a different direction.

We also conduct our own company interviews in which we get direct information on how various submarkets are functioning in practice. The indicators often provide a slightly diffuse picture of the state of the economy. Here we find various indicator models useful in that, on the basis of an analysis of the historical significance of different indicators, they help us to put our most important forecasts into figures. Ultimately, we also have to weigh information that is not captured by our indicators into our assessment of the current state of the economy. Model forecasting is the next step Once we have produced a forecast for the outlook abroad and performed an assessment of the current situation we are ready, with the help of various large macro models, to produce forecasts for longer time horizons. It could be said that the models give a description of how prevailing impulses from abroad and the initial state of the Swedish economy will affect the development of the economy. In the very long term, however, the effects of the prevailing impulses will have faded and the economy will then follow a balanced path in the long run. This balanced state, which in model terms is often called a steady state, is an important characteristic of a model. We could perhaps say that an assessment of the current situation tell us where we are while models tell where we are going in the very long term.
The upper and lower confidence intervals for this calculation method mean that the current level of equilibrium unemployment can be said, with 95 per cent confidence, to lie between just over four per cent and nine per cent. The grey curve shows a calculation using an alternative unobserved components model, while the blue curve is a calculation based on what is known as a structural VAR model, which includes GDP and unemployment. When it is considered that it is unclear which of the three methods of calculation should be used, uncertainty over the equilibrium level will increase. This can be seen from the variation, depending on method, of the estimates of equilibrium unemployment. 8  See, for example, Forslund (2008) for a discussion of factors affecting the level of equilibrium unemployment. 9  This state of long-term economic equilibrium is the same as saying that the economy is in a steady state.

This means large welfare losses for both the individual and Swedish society, and that a well-needed injection of resources to the Swedish labour market risks being lost. Integration work is therefore important to turn this trend around. Integration work should emphasise the importance of education as there has been a large immigration of groups lacking basic education. The possibilities to find work are affected to a great extent by the level of education the job seeker has. Upper-secondary school education is usually a basic requirement when recruiting staff and, according to the Swedish Employment Service, most jobs that do not require an upper-secondary school education have disappeared forever from the Swedish labour market. A worrying development is that the percentage of unemployed with only secondary school education has increased substantially in the age groups below 35 years. This is because a large percentage does not obtain complete grades at upper-secondary school. So it is not surprising that the Swedish Public Employment Service points to the fact that there has been a rapid inflow to the labour force in recent years of people in groups that have difficulty finding jobs quickly. This increase is partially linked to people being transferred from the Social Insurance Office to the Swedish Public Employment Service. At the same time, the Swedish Public Employment Service has been given the main responsibility for people who have immigrated to Sweden.
If a bank sells a portfolio with mortgages, the capital requirement is less binding and one has scope to give new loans. So far, however, securitisation has not been as common in Sweden as in, for instance, the United States or the United Kingdom. Moreover, it has become less common since the global financial crisis. However, new products are being created all the time, that can entail risk. Recently, for instance, there has been a focus on SPAC (Special Purpose Acquisition Company). Instead of taking a bank loan when starting a company, one forms a ‘shell’ company that takes in money and then buys a company. Market financing increases sensitivity to disruptions in the financial markets Many companies have begun to rely on market financing to a greater extent than before, that is, they issue their own commercial paper or corporate bonds instead of obtaining financing through bank loans. And this makes the companies more sensitive to disruptions on the financial markets. Around one third of the companies’ loan financing is currently in this form, see Figure 4. There are probably several factors behind this development. For instance, the low interest rates have increased investors’ willingness to take risk and demand for corporate bonds. However, more structural changes have also made it easier for companies to issue 31 See Rajan (2005). 14 [35]  bonds, such as the increased demand from asset managers, insurance and pension companies, which in turn reflects an increase in household wealth.

•  Such risks include defaults and insolvencies of trading partners, regulatory changes, expropriation, labour unrest, and acts of terrorism. •  As the largest centre for structured trade credit and political risk insurance in Asia, Singapore can provide Chinese banks and corporates comprehensive and tailored risk management solutions. Infrastructure financing China is playing an increasingly important role in helping regional economies with infrastructure development through its “One Belt One Road” initiative. Chinese corporates and financial institutions can tap into Singapore’s well-developed infrastructure financing ecosystem in the following ways. •  Leverage on the strong network of multilateral agencies, banks and institutional investors to access regional infrastructure deals. •  Deepen their expertise in project structuring, risk allocation, and loan documentation. •  Gain access to the network of local project sponsors who are traditionally more accustomed to dealing with local and global banks. 4  BIS central bankers’ speeches  Asset management China is one of the key markets for Singapore-based fund managers, both as an investment destination as well as a source of capital. •  There is strong interest from financial institutions here to tap Singapore’s RQFII quota and offer investments with China exposures. •  Last week, Blackrock secured RMB 20 billion of approved RQFII quota in Singapore, which is the second largest quota granted to-date. At the same time, the Singapore market offers globally diversified investment portfolios for Chinese pension funds, insurance companies, and individuals.
This means providing credible assurance that the financial sector is in solid shape today and that the restructured financial system will be able to reliably supply credit across the business cycle – ensuring there is no 2008-style sudden sharp constriction in credit availability. For this reason, policies that increase financial stability, both ex ante by eliminating incentives for excessive risk-taking and making the system more robust to failure, and ex post, by ensuring the capacity to respond to a major shock, will help support growth today. The process of financial repair also matters greatly in terms of high debt households, since underwriting standards help define how much deleveraging must occur to regain access to credit. While we do not want a return to the easy credit standards of the bubble period, we also don’t what to overshoot in the opposite direction. Housing is another area where policy can support the recovery by helping to stabilize house prices and housing activity. Housing is the most important tangible asset for most American households, and housing debt the biggest liability. Obstacles to mortgage refinancing undermine the impact of monetary policy. Moreover, declines in house prices and the risk of future declines directly affect the degree of deleveraging that needs to take place among homeowners with high levels of debt, and the extent of precautionary saving by homeowners with low levels of debt. While home prices had to correct following the bubble, they no longer appear overvalued relative to historic multiples of cash flow, income and rents.

It is true, as I indicated earlier, that in recent years most European bank income statements have reflected sluggish growth. This is largely a result of cyclical factors such as persistent macroeconomic weakness (despite the recent improvement), subdued credit demand amidst deleveraging by households and firms alike and low interest rates which exert considerable pressure on financial margins. Nevertheless, there would also appear to be structural factors that could keep banks’ returns on capital permanently below their pre-crisis levels. In particular, it is reasonable to assume that stricter prudential regulations will moderate banks’ profits, if for no other reason than the higher regulatory cost they impose on high-risk exposures which are usually also those that generate higher expected returns. More generally, as I mentioned earlier, one of the aims of the new legislation is to increase the participation of banks’ shareholders and creditors in the absorption of losses in the event of bank failure. This means reducing to a minimum the idea of an implicit state guarantee for banks’ liabilities, which will naturally have an impact on the industry’s financing costs and, therefore, on bank profitability. In addition, it should also be noted that medium-term trends in advanced economies – characterised by the need for deleveraging, moderate productivity growth and population ageing – exert downward pressure on potential growth and prompt excessive structural saving which will tend to keep interest rates low. As a result, we may see marked changes in the banking business.
Bond premiums are nevertheless likely to remain clearly higher than prior to the financial crisis. Investors cannot be certain that government will cover bond investors’ losses when banks’ capital evaporates during the next banking crisis, c.f. the planned UK proposal to impose a “living will” on the large institutions. A favourable source of funding for banks is covered bonds, referred to as OMF in Norway. These debt instruments are secured by sound collateral backed by residential mortgages, public loans or commercial property loans. The risk premium on these loans is therefore lower than on ordinary bank bonds. The covered bond market was also heavily impacted by the financial crisis. Activity in the secondary market has been low, and investors showed little interest in new issues. The swap arrangement introduced by the Norwegian authorities eased the situation for banks. The market has recently improved. Covered bonds have a long tradition in other countries’ housing markets. As manager of the Government Pension Fund – Global, Norges Bank has taken initiative to strengthen the European covered bond market. Together with several other large investors and support  14  BIS Review 131/2009  from a number of central banks, the “Covered Bond Investor Council” was established. One of the main aims of the Council is to improve liquidity in the covered bond market, through for example more transparent and standardised borrowing terms. The Norwegian covered bond market is new and small compared with that of other countries.

Svein Gjedrem: The financial crisis – the path ahead Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the annual meeting of the Norwegian Savings Banks Association, Oslo, 22 October 2009. The text below may differ slightly from the actual presentation. This lecture does not contain assessments of the economic situation or current interest rate setting. *  *  *  The past two years have been turbulent for banks, their customers and the authorities. The turbulence began to affect Norway in earnest last autumn. Norway has experienced banking crises before, and there is much to be learned from the management of these past crises. One who experienced his fair share of crises was Nicolai Rygg, another central bank governor from this part of Norway and the son of a local shoemaker. The name stems from the Rygg farm in Randaberg. In 1923, Handelsbanken, the fifth largest bank in Norway, was on the brink of collapse. 1 At that time, government interventions were to a greater extent kept out of the public eye and the bank received government support in secret. However, the Government had approved the allocation without informing the Storting. As a result, Prime Minister Abraham Berge and six government ministers were impeached. In his testimony, Rygg stated: “Through both of these years, 1921 and 1922, ceaseless efforts had been made week after week to resolve a wretched situation.
Moving on to the second aspect – the importance of using SARON more actively in financial products and developing a liquid, SARON-based yield curve: To date, Libor has been widely used in financial products, however market participants are now working hard on transitioning to new, SARON-based products. These include derivatives, especially interest rate swaps, which can be used to hedge against changes in interest rates. 1 A SARON-based interest rate swap market was set up back in 2017. Trading activity in this market remains low, however it is expected to pick up once SARON becomes more widely used in cash products (such as loans, mortgages and capital market instruments) and investment products. The SARON1  An interest rate swap allows a contractually agreed, fixed interest rate (e.g. for a period of five years) to be exchanged periodically for a floating interest rate. The floating interest rate portion of the contract is determined by a reference rate. Page 2/3  Berne, 13 June 2019 Andréa M. Maechler  News conference  based yield curve will then be able to take over the role of the current, Libor-based yield curve. Yield curves are important benchmarks for market participants and serve as the basis for pricing medium and long-term financial products. And, finally, the third aspect – how should interest payments be calculated for a period of three months, for example? Libor provided a three-month rate which could, among other things, be directly applied to the calculation of interest payments on money market mortgages.

The third panel, chaired by Duvvuri Subbarao, will take up the question of how to deal with these vulnerabilities. What are the appropriate policy responses, and what is the role for regulation and capital controls? One policy response has been the accumulation of reserves, which can provide a temporary shock absorber. However, reserve accumulation entails costs for the countries accumulating reserves as well as for the world economy as a whole. Our last panel, chaired by Masaaki Shirakawa, will discuss alternatives to self-insurance. An obvious question here is the role of IMF lending facilities. 2  BIS Review 65/2010  As already mentioned, the questions we address today are difficult and complex. Someone who played an important role in trying to address them over several decades was Jacques Polak. Sadly, he passed away earlier this year. Reflecting on the efforts to reform the international monetary system since the Bretton Woods conference, Jacques Polak once suggested that “those of us who toil at the international monetary system would do well to adopt Sisyphus as our patron saint”. In honor of Jacques Polak, let us then push the stone back up the mountain once more and start with our first panel. Thank you for your kind attention. BIS Review 65/2010  3
When the conversion from petroleum wealth to financial assets has been completed, the objective will still be to restrict withdrawals so that the real value of the Fund’s capital is maintained - in principle, indefinitely. The Petroleum Fund functions as a buffer against movements in the krone exchange rate when oil prices vary. The cash flow from an increase in oil prices will accrue to the Fund and be invested abroad. In this way, the Fund contributes to limiting an appreciation of the krone and maintaining a stable exchange rate. At times, it seems that participants in the foreign exchange market underestimate the Petroleum Fund’s buffer mechanism. Since summer 2004, the krone, measured by the trade-weighted exchange rate index (TWI), has appreciated by about 5 per cent. The chart shows the exchange rate and the price of oil since 1999. There does not appear to be any clear relationship between the nominal exchange rate and oil prices over time. The krone has appreciated in periods with high oil prices, but the same has occurred when oil prices have been low. The correlation between the oil price and the krone exchange rate has varied over time. Since inflation targeting was introduced in March 2001, the average correlation has in fact been zero. This result is worth noting and indicates that the export of capital via the Petroleum Fund has protected the nominal exchange rate from price fluctuations in the oil market.

Other major 1/6  BIS central bankers' speeches  central banks such as the Fed and the Bank of Japan followed the example of the ECB, in 2012 and 2013 respectively, and also adopted the same 2% inflation target. This “conceptual convergence”3 is remarkable. With regard to our mandate, the results are tangible [slide 1]. During the 20 year period prior to the introduction of the euro (1979-98), average inflation in the euro area was at 4.9%, compared with only 1.7% during the 20 years that have followed. What’s more, better controlled inflation means lower financing costs as risk premia are reduced: interest rate differentials and sovereign spreads have narrowed significantly [slide 2]. The France-Germany spread fell from an average of 1.9% between 1986 and 1993 – the period of the single market without a single currency, between the Single European Act and Maastricht – to 0.4% in 2017-19. The Portugal-Germany spread narrowed by 5.5 percentage points over the same period. Furthermore, in terms of growth [slide 3], and unlike a common misperception, euro area per capita GDP has improved almost as rapidly as in the United States since the euro was introduced. It increased at an annual average of 1.1% between 1999 and 2017, compared with 1.2% in the United States, with the gap between the two widening only temporarily during the 2011-12 European crisis. 2.