samchain/econo-pairs-v1 huggingface dataset:
BIS Review 44/2006  1  considerably improved our understanding of what has happened in the mid nineties with the end of what has been called the Solow paradox… On this side of the Atlantic one can understand why we did not observe the same jump in labour productivity: on the one hand the share of I.T production in the GDP is significantly lower and, on the other hand, the absence of sufficient flexibility in the economy in general does not permit to benefit from the rapid diffusion of innovation in general and of I.T in particular in the other sectors of the economy. To sum it up Europe would still be in the Solow paradox. But there is a second paradox in the case of Europe or perhaps more than a paradox: a conundrum. Why is it that not only we did not improve our productivity when the US did it – around the mid eighties – but that we observed on the contrary a very significant diminishing of our productivity? This phenomenon seems to me only half understood through traditional explanations: the impact of specific policies aiming at drawing back to work a significant number of previously unemployed unskilled workers – with a low level of productivity – that have been launched in several European economies; and a degree of under-investment hampering the stock of capital allocated to each employee. But it explains only around half of the diminishing of the labour productivity growth.

In the EU we have about 5.3 scientists and researchers per 1000 workers, which compares to the US figure of 9 per 1000. 17 In addition, ICT investment, which is an indicator of the diffusion of innovation, represented 6% of GDP in the US over the period 2000-2004 compared to only 3% in the euro area. ICT diffusion appears to be particularly relevant in the services sector given the higher potential for employment creation in that sector combined with the evidence that there is no apparent trade-off in the medium term between labour productivity and employment growth at the level of the sector as a whole. As a result, the key issue for the larger euro area countries is how to increase their future capacity to promote the diffusion of innovation and, in particular, technological changes in the service sectors, a field in which the Nordic EU countries have performed particularly well 18 . The state of structural reforms If euro area countries would now summon up their strength and ambitiously push forward with structural reform, this will support and broaden the improvement in economic activity in the euro area. This is why the ECB has always encouraged the implementation of structural reform within the Lisbon strategy. Five years later, progress has been made in some areas - as also indicated by an increase in the euro area employment rate. Still, all in all the reforms have not been far-reaching enough 19 .
On the other hand, investment continues to be the most lagging component of expenditure, and a less favorable than expected evolution cannot be ruled out. The data show that in the first quarter investment in construction and works failed to recover, that no major investment projects have entered the surveys and that domestic political/legislative events have affected the stock market, which is typically correlated with the future evolution of investment. If this situation were to worsen to stagnant or declining investment, monetary policy would have to remain highly expansionary for a longer period, which is reflected in the lower limit of the MPR Corridor. Although the economy has shown significant recovery, the pandemic phenomenon is still present and unexpected events may occur. The central scenario considers that during the second half of this year, there will be growing de-confinement of the population and the social distancing measures will be relaxed, as the goals of the vaccination campaign are achieved. However, scenarios of a slower opening are possible. As a matter of fact, infections have increased again, and quarantines have been re-imposed in several districts. If this intensifies, the closing of the activity gap could be delayed, requiring the current monetary expansionary stance to be maintained for a while longer. Page 7 of 27  On the external front, it cannot be ruled out that the cost pressures faced by companies around the world will have more persistent effects on inflation.

However, this should not prevent us from deepening the discussion about how monetary policy is conducted against the background of the experiences in Sweden and other countries. BIS Review 56/1997
Governance of the euro area can be imagined like a set of interlocking cogs wheels: they do not all need to be of similar size – that is, we do not necessarily need the same degree of centralisation in each area – but they need to all move in the same direction. If one cog moves in the other direction, the whole machine grinds to a halt. There were several inconsistencies between policy areas in the euro area that had such a countervailing effect. To begin with, the frameworks for economic and financial policies pulled in different directions. Increasing financial integration encouraged capital to flow from core to periphery, but this was not accompanied by increasing integration of product and services markets to ensure that this capital was allocated efficiently. In fact, as competitive pressures remained weak, in particular in the non-tradable/services sector, certain industries were able to maintain excessive rents and distort price signals. This meant that the low marginal product  4  BIS central bankers’ speeches  of capital in these industries was offset by rising profit margins, leading capital to become misallocated. The fiscal and financial frameworks also interacted negatively with one another. In particular, policy-makers underestimated the extent to which financial integration depended on the false perception of relatively homogenous sovereign credit risk. As euro area banks were heavily exposed to own governments’ debt, when perceptions of sovereign creditworthiness diverged, so did confidence in their respective banking systems.

This internal consistency explains why monetary policy is the only part of the EMU framework that has clearly functioned as designed. Fiscal policies were supposed to conform to the other form of governance, where countries would decide on and execute their own budgets, but within the strict constraints of the deficit and debt limits set in the Treaty. Those limits were supposed to be policed by markets, the Commission and other Member States, but in practice the incentives of the latter to enforce the rules were weak. This meant that de facto rules could be applied with discretion, while Member States themselves decided on how to exercise that discretion – in other words, the worst combination of the two forms. The result was that fiscal positions diverged significantly, which then created substantial spillovers for other euro area members. But perhaps more fundamentally, internal inconsistency meant that fiscal policy itself became ineffective in several jurisdictions. A number of governments either did not have the fiscal space to absorb the shock they faced in the early stage of the crisis, or they were unable to maintain the trust of the market when investors finally reacted – and over-reacted. Fiscal policy therefore had to effectively give up its stabilisation function – which is vital with a single monetary policy – and switch to convincing investors of debt sustainability. Prudential policies were also supposed to fit the decentralised model, although here the framework was even looser.
While they lasted these regimes provided a degree of nominal exchange rate stability which no doubt helped the internationally exposed sectors of the economy. But the price ultimately was substantially increased instability in the economy as a whole. 3  BIS Review 54/1999  Of course, some commentators have argued that the problem we had within the ERM was the exchange rate at which we entered rather than the form of the arrangements. I am not convinced. The divergence between our domestic policy needs and those in Germany was such that it seems unlikely to me that any plausible difference in the exchange rate initially chosen for the peg would have made very much difference. But in any event the range of uncertainty surrounding the choice of a sustainable peg is an important part of the problem with any pegged or fixed rate regime. The UK has not recently experienced a fully fixed exchange rate regime – although we remain a potential member of European Monetary Union. But the basic economic pros and cons of a fixed rate regime are somewhat similar. Essentially the very real advantages are nominal exchange rate certainty within the Euro-zone – which accounts for some 50% of our external trade as well as participation of the domestic economy in broader, more liquid, pan-European financial markets.

A good example of this was Law 2/2011 on Sustainable Economy, which marked a milestone on the road towards advanced regulation of conduct. For example, this legislation includes for the first time so-called “responsible lending” and modernises claims services. Several European Directives addressing this field have also been approved. Banco de España Circular 5/2012, which replaced Circular 8/1990, includes all these features. I honestly believe that the current rules accurately regulate transparency obligations regarding bank products and services both in the pre-contractual stage and over the life of the operation. Evidently, in parallel with these regulatory developments, there have been most significant changes in society, public opinion and jurisprudence, especially in the past decade. Our supervisory framework has also evolved. Now, in addition to focusing on formal compliance with conduct obligations, it also envisages the management and mitigation of these risks by banks and their incorporation into the business model. I shall briefly refer to these aspects today. But I will also broach the need to enhance customers’ financial knowledge. In my view, this is a key element of which little mention is usually made. The cost of litigiousness Clearly, the changes in customer safeguard regulations and in jurisprudence mean that what was appropriate in the past has ceased to be so today. Undoubtedly, banks have acted questionably; but to be completely fair, we should acknowledge that the legal playing field on which banks operate has changed significantly.
And the more competitive environment has led to continuous performance improvements, with pervasive use of new technologies for operational efficiencies from back to front office and new means of interface with consumers. Owing to our combined efforts, these developments have positioned the banking sector well to take the next leap forward to take advantage of new business opportunities, both onshore and abroad. In charting the transformation journey of our financial services sector, we have long been aware that the quality of our workforce is fundamental to its success. Much focus therefore has been given since the last decade to talent development, with significant investment in capacity building and infrastructural ecosystem dedicated to raise the standards on education in financial services. As we progress into the new era of growth, our continued success in the ever-changing environment will very much depend on our ability to harness the industry’s intellectual capital more productively. As envisioned in the new Financial Sector Blueprint that succeeded the FSMP, the financial sector is being positioned to play a key role in realising Malaysia’s vision to become a developed economy. This design thinking for the industry necessitates the banking sector to further enhance its dynamism in the face of competition for innovation and quality in the offering of financial products and services.

Already some host supervisors have found that local managers may be unfamiliar with the parent organisation’s plans for Basel II: this understandably tends to make host supervisors less confident about the quality of an organisation’s planning and its readiness to move to Basel II. Moreover, it increases their need to ask more questions, some of which may duplicate the questions that the home supervisor or other host supervisors are asking. If a bank has already developed sufficiently detailed and transparent plans for its application of Basel II, a substantial portion of the hard work has already been done. Sharing those plans with home and host supervisors, and with managers throughout the bank’s operations and locations, should not require too much more effort. Instead, the bank should be in an even better position to focus on running its business confidently while still implementing its plans carefully for the future. Validation One of the greatest challenges – for both banks and supervisors – of the Basel II framework is the need to validate the systems and processes used to generate the parameters that serve as inputs into the IRB approach to credit risk. Although validation is foremost the responsibility of banks, supervisors must have a thorough understanding of validation in order to ensure overall integrity of bank’s activities in this area. In recognition of the importance of validation the Committee recently published six principles on validation that will guide our future work.
Internationally, the baseline scenario assumes that the world economic recovery will be more gradual than suggested by average consensus estimates. There are risks, such as a significant deceleration in the economic activity of the U.S. or China or, as is usual, persistent global imbalances. However, the greatest source of risks at this moment comes from financial stress, given the remaining by markets regarding whether the fiscal adjustment and financial support measures announced in Europe will be feasible and large enough. The magnitude and reach of the effects of a scenario in which the weak fiscal and/or financial  4  BIS Review 99/2010  situation in Europe intensifies or spreads to other regions materializes, are highly uncertain, but potentially substantial. Stress tests reported in the IEF show that current levels of capitalization of the banking industry allow it to absorb the probable consequences of this scenario of increased global financial instability. Meanwhile, banks have high levels of liquidity. Despite these strengths, banks must pay special attention to the management of their liquidity positions in foreign currencies and take any necessary actions to ensure smooth access to foreign markets. This consideration is especially important due to the fact that the European commercial banks account for a major fraction of Chilean banks’ external financing. In addition, in the risk scenario, other forms of contagion cannot be ruled out, considering the presence of foreign banks in Chile.

As I have said on several occasions, this is the main contribution of the Central Bank of Chile to growth and stability of the Chilean economy. Thank you very much. 6  BIS Review 99/2010  Figure 1  Real interest rate gap: Real MPR minus indicated neutral interest rate (percent)  Monetary policy interest rate (MPR) (percent) 10  10  6  6  8  8  3  3  6  6  0  0  4  4  2  2  -3  -3  0  0  -6  -6  07  08  09  10  00  02  04  06  08  10  Rate implicit in CBC's forecasting models Rate derived from consumptionbased model  Source: Central Bank of Chile. Figure 2  Commodities prices (indexes, 02/01/2006=100)  Stock-market volatility (percent)  100  100  250  250  80  80  200  200  60  60  150  150  40  40  100  100  20  20  50  50  0  0  0  0  07  08  09  10  Developed markets (1) Emerging markets (2)  06  07  08  Copper  09  10 WTI Oil  (1) VIX volatility index. (2) Estimated volatility of MSCI index in dollars. Sources: Bloomberg and Morgan Stanley Capital International.
Fritz Zurbrügg: Review of financial market developments, and various interest rate and foreign exchange benchmark reforms Introductory remarks by Mr Fritz Zurbrügg, Member of the Governing Board of the Swiss National Bank, at the Media News Conference of the Swiss National Bank, Berne, 1 December 2014. *  *  *  In my remarks, I will begin by talking about developments on financial markets since the middle of the year. Then I will speak about the various reform efforts in the area of interest rate and foreign exchange benchmarks. Developments on the financial markets After a lengthy period of calm, volatility has increased slightly on the financial markets since the middle of the year. In addition, investors’ appetite for risk has dipped at times, and the risk markets have suffered temporary setbacks. Thus we have observed two waves of selling on the stock markets over the past few months (cf. chart 1). At the end of July, the European stock markets, in particular, were affected, while those in the US and the emerging economies proved more resilient. The second, more serious wave of selling set in at the end of September, making a significant impact on the major non-European markets as well. The main trigger for both waves was unexpectedly weak economic data in the core economies of the euro area and Japan. To some extent, this negative effect was aggravated by geopolitical tensions. However, chart 1 also shows that these waves of selling were relatively short-lived.

If a situation arises whereby Norges Bank is not able to return the krone to its initial range without such consequences, the Bank will inform the government authorities that measures other than those available to the Bank are required. This may involve recommendations concerning fiscal measures that make it possible to return the krone exchange rate to its initial range and to stabilise it. In the event of pronounced and prolonged shifts in the economy, fiscal policy and wage determination must contribute to restoring balance in the economy. However, if fundamental and permanent changes have taken place in the framework conditions for the Norwegian economy, it may also be appropriate to change the guidelines for monetary policy. According to the Maastricht treaty, the main objective of the ECB is the maintenance of price stability. The ECB has defined price stability as inflation of 2% or lower. BIS Review 92/2000  4  Inflation in Norway cannot remain higher than inflation in the euro area year after year without any consequences for the exchange rate between the Norwegian krone and the euro. If price and cost inflation remains higher than the rate of increase aimed at by the ECB over a long period, the krone will depreciate against the euro sooner or later. Even if instruments are oriented with a view to stability in the krone exchange rate against the euro, cyclical differences will result in inflation differentials between Norway and euro area countries. Business cycles have been desynchronised over the last 15 years.
Monetary policy in Norway is oriented towards low and stable inflation. This is the most important contribution monetary policy can make to sound economic developments in the long term. Low and stable inflation provides enterprises and households with an anchor for inflation expectations. In its conduct of monetary policy, Norges Bank operates a flexible inflation targeting regime, so that weight is given both to variability in inflation and variability in output and employment. Flexible inflation targeting builds a bridge between the long-term objective of monetary policy, which is to keep inflation on target and provide an anchor for inflation expectations, and the short-term objective of stabilising economic developments. Transparency surrounding Norges Bank’s assessments of monetary policy trade-offs enhances economic agents’ understanding of how economic news influences the interest rate. In recent years, it has become easier to read the Bank’s intentions. As a result, monetary policy has become more effective. The background material for the Executive Board’s monetary policy meetings is published and the assessments underlying the interest rate decisions are explained. As from last autumn, the Bank publishes its own interest rate forecast. From using technical assumptions and others’ assessments, we have taken ownership of the interest rate path in our projections. Even though  BIS Review 44/2006  1  considerable uncertainty still remains, it becomes easier for economic agents to assess interest rate developments. Weak growth in the world economy early this decade led to low interest rates in many countries.

Interest rates were kept at a low level for a long period, but are now on the rise. The world economy is again expanding at a brisk pace. Over the past three years, global production has increased by about 14 per cent, which is the strongest upturn since the beginning of the 1970s. In the UK and US, interest rates have already moved up to a more normal level. In Sweden and the euro area, the central banks have started to raise interest rates. Over the next year, further interest rate increases are expected in the euro area, the UK, Sweden, Switzerland, the US, Canada, Japan and Australia. Norway has also experienced a fairly long period of falling and thereafter stable, low interest rates. Price inflation was subdued, and there was idle capacity in the economy. Real interest rates have been very low and markedly lower than a neutral level. In line with the prospects I presented to the Committee last year, we have started raising interest rates. To date, Norges Bank’s key rate has been increased by 0.75 percentage point. Consumer price inflation has edged up, but is still very low even close to three years after the start of the cyclical upturn. Consumer prices adjusted for tax changes and excluding energy products have risen by 1 per cent over the past twelve months1. Prices for imported consumer goods have fallen almost every year since the mid-1990s, reflecting freer trade and the shift towards imports from lowcost countries.