samchain/econo-pairs-v1 huggingface dataset:
W A Wijewardena: Why worry about inflation? Speech by Mr W A Wijewardena, Deputy Governor of the Central Bank of Sri Lanka, at the Central Bank of Sri Lanka, Colombo, 25 May 2007. *  *  *  Inflation, a continuous and steady rise in the general price level, is, by any standard, the public enemy number one. By the same token, hyper-inflation, an increase in the general price level to a very high level within a very short period of time, is a killer, akin to a mass destruction weapon. Mr. Gideon Gono, Governor of the Reserve Bank of Zimbabwe, a country with an inflation rate of more than 3700%, equated his country’s inflation to an economic HIV, a situation where people would die en masse. This reference eloquently amplifies the gravity of the cost of inflation which a country has to bear. Why public enemy number one? From the point of view of economics, there are usually two declared public enemies: inflation and unemployment. Of the two, inflation ranks higher. This is because inflation hurts everyone alike: bankers, businessmen, workers, consumers and so forth. You cannot escape it unless you are smart enough to beat it by raising your income faster than inflation. In contrast, unemployment which is also a serious problem, disadvantages only the unemployed. That category is only a segment of the society. Hence, inflation is a bigger public enemy than the unemployment.

While such ambitions are quite legitimate, most of them would find achieving this goal very challenging. Why? Because an IFC, by definition, serves not only domestic customers on its own turf, it also captures financial businesses and money-flows either from a large hinterland or the neighbouring areas or both. This is a big challenge because it entails serving customers from the other jurisdictions or cross border transactions. It also entails the need to deliver consistent and efficient financial services in order to be competitive in international financial business. The truth of the matter is that only a small number of cities can successfully become international financial centres because IFCs need a critical mass and market depth. It should be noted that international financial transactions and money tend to migrate towards those centres that provide the most efficient and competitive services to customers. In other words, domestic financial centres will need to go through very fierce competition before a few of them can emerge as successful IFCs. Given Hong Kong’s accomplishment as one of the region’s premier IFCs, there are many study groups from abroad coming here to learn the tricks that have helped achieve what we have today.
But openness is not only a requirement in itself but also a necessary condition for monetary policy to work. It does not work unless the Riksbank and the objective of our activities are supported and legitimated by the people. And this requires that we are open and clear. It should be easy to critically examine how monetary policy is conducted and how well we live up to our principles. Most people probably agree that the Riksbank’s openness has contributed to a good monetary policy debate in recent years. Openness and clarity contribute to monetary policy functioning better But it is not only democratic reasons that have led to the Riksbank and most other central banks becoming more open and clear. Another important reason is that we have quite simply regarded it as a means of more easily achieving our objective and of making monetary policy more efficient. There are three main aspects I would like to emphasise in this context: •  Firstly, it will be easier to communicate that the interest rate decisions made are really aimed at achieving low and stable inflation. This provides greater credibility and helps to anchor expectations around the target. It was an important reason why the Riksbank began to publish its inflation forecasts and other material on which decisions are based early on in the new inflation-targeting system.

Mr. George weighs up the pros and cons of European Monetary Union Speech given by the Governor of the Bank of England, Mr. E.A.J. George, at the Bankers Club Annual Banquet held in London on 3/2/97. I’ve been a follower of Jim Wolfensohn for the past 20 years, and it is a great pleasure to follow him again this evening. I first came across him when he was an extraordinary investment banker reputedly flying the world with his cello strapped securely in the adjacent seat. His eventual appointment to the Presidency of the World Bank was inspired. He brings to it an outstanding professionalism. But - as you have heard this evening - he brings to it also a broad humanitarian vision and total commitment to the World Bank’s task of improving the lives of people in those parts of the world that still need outside official help with their reconstruction and development. President Wolfensohn’s canvas tonight has been global. My own focus will be on Europe, and in particular on European monetary union - though it’s fair to say that EMU could well have significant consequences for the global economy. This country is widely regarded elsewhere in Europe as being bloody-minded and even obstructive about monetary union, largely because there is indeed an intense, and often impassioned, debate going on here about the pros and cons. And so there should be. It’s a momentous enterprise, with potentially enormous implications for Europe’s political and economic future.
Large shares of the sizeable oil revenues were transferred to our sovereign wealth fund, the Government Pension Fund Global (GPFG). GPFG assets are now more than double the GDP of Norway’s mainland economy. High oil prices and a profitable petroleum production industry have been accompanied by record-high oil investment in recent years (see Chart 4). The level in 2014 was equivalent to overall investment in domestic non-oil industries. The positive spillovers to the oil service industry and other private operators have been substantial. Employment has remained high and unemployment low, even when the financial crisis hit in 2008. The Norwegian economy has made use of favourable winds and seized the opportunities offered. The other side of the coin is an economy that has become increasingly dependent on oil, and thereby more vulnerable to changes in oil prices and petroleum revenues. The vulnerability manifests itself in several ways. 2  BIS central bankers’ speeches  A large share of the business sector and the labour market is now linked to the oil industry. A relatively small share is directly employed in the oil and gas production industry. But if account is taken of all the suppliers to the petroleum sector, about 1 in 9 jobs in Norway, a total of 300 000, are linked to the oil industry.2 Exports from Norway to the oil industry in other countries account for a growing share of this activity, and this may be a path forward in the face of a decline in petroleum investment in Norway.

Petroleum-related exports from mainland Norway are also included. 3  Share of home-owning households. Debt is here defined as gross debt less bank deposits. BIS central bankers’ speeches  3  Even though the price decline is putting a brake on exploration activity and the development of new fields, we can expect further advances in the new technology and its wider use. Looking ahead, we must prepare ourselves for an environment of lower oil prices compared with the levels seen in recent years. It would be unwise to act on the assumption that oil prices will again settle around USD 100 per barrel. It has long been clear that activity on the Norwegian continental shelf would decline. The fall in oil prices in recent months has accelerated and amplified an announced decline in activity. Norwegian exporters of oil-related goods and services to other oil-producing nations may also face a decline. This does not mean that the oil age is nearing an end. Nearly half of known oil and gas reserves on the Norwegian continental shelf have not yet been extracted.4 Over the past few years, large new discoveries have been made. One of them – Johan Sverdrup – will soon be ready for development. The Norwegian oil service industry can expect new orders. Nonetheless, the Norwegian economy must adapt to considerably lower demand from the oil sector. From being in a unique economic position, Norway is now headed for a period of restructuring.
But there are reasons to think that we will see a pickup in 2016 and 2017 as set out in the forecast Productivity growth can be divided into two sorts of change: the change in productivity inside individual firms and the changes between firms. The first, the changes within firms, happens as firms increase their efficiency. The second happens as labour and capital are reallocated between firms, from the less productive ones to the more productive. This reallocation between firms in the economy happens through changes in market share as the more productive, higher return firms, grow and the less productive, lower return, firms shrink. And it happens through the deaths of the low return firms and the birth of new ones. After collapsing in the crisis, productivity began to increase again within firms two years ago. We expect that to continue. As the economy grows, spare capacity is used up. The real cost of labour increases relative to the cost of investment. Firms have a greater incentive to find efficiency gains and to switch away from more labour-intensive forms of production. This should boost productivity. In contrast, productivity growth due to the reallocation of resources in the economy remains weak. We can see this in the divergence of rates of returns across firms which remain remarkably and unusually high and the change in capital across sectors which has been particularly low.

Lars Nyberg: Are the risks growing in the banking system? Speech given by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at an analyst meeting at Enskilda Securities, held in Stockholm, on 14 June 2000. *  *  *  I would like to thank you for inviting me to today’s analyst meeting and giving me the opportunity to discuss financial stability issues with such a qualified audience. I would like to start by briefly explaining the Riksbank’s analysis of financial stability. In addition to the inflation target, the Riksbank has another primary task, namely that of being responsible for financial stability. These two important functions are closely linked. A stable financial system is important for price stability since financial imbalances can threaten the inflation target. Likewise, an inflation target policy contributes to stability in the financial system, as it has a levelling effect on cyclical fluctuations. The Riksbank’s analysis of financial stability can be interesting for analysts of bank and property shares, since we closely monitor the banking sector and property market within the scope of this analysis. Our perspective is somewhat different, however, since we are mainly interested in risks which can threaten the stability of the financial system and which often appear to be relatively improbable, while stock analysts attempt to assess the most likely developments in the market. However, the information about the markets is largely the same and analysts also need to consider the risks in the companies which they are covering.
To get the full picture you need to take both into account, not just the partial impact of a change in the exchange rate but those of its underlying drivers as well. Take sterling’s fall in 2008 and 2009. One plausible explanation was that the financial sector is more important for the UK – notably its exports and the government’s tax receipts – than for other countries. So its economy and public finances were more vulnerable to the global financial crisis. The depreciation helped to cushion these effects but it wasn’t enough to outweigh them. The downturn was no less severe here than elsewhere, notwithstanding sterling’s fall. Sterling’s more recent decline was clearly prompted by the referendum result. It also seems likely that the foreign exchange market has decided the consequences are negative. The most plausible explanation for the depreciation is that, in the eyes of the market, leaving the EU will make exporting harder and more costly. To help compensate the currency needs to be cheaper. There are many important differences with 2008/09, of course. One is this: Brexit hasn’t happened yet. Back then sterling’s fall happened alongside its cause. On this occasion the depreciation reflects beliefs about a change in the UK’s future trading arrangements, but it’s acting on an economy where those arrangements are for the time being unchanged. The result – higher prices and profits but unchanged rules and costs – represents something of a sweet spot for exporters and businesses that compete with imports.

The bond purchases made by a number of central banks in the wake of the global financial crisis were aimed at pushing down yields on longer maturities. Put simply, the idea is that, if the central bank purchases part of the available debt securities, anybody wishing to have these in their portfolios will be forced to compete for a smaller supply. This will push up the prices for debt securities so that yields will decrease. Of course, assessments of the effects of central banks’ bond purchases vary between different analyses, but there is a lot to suggest that three major central banks (the Federal Reserve, ECB and Bank of England) have succeeded, to some degree, in pushing down long-term yields and weakening their exchange rates.4 But there has, of course, been some uncertainty over what the effects would be in Sweden’s case. There have also been risks to consider, for example that the functionality of the Swedish bond market may start to become impaired if the Riksbank were to purchase a large portion of the supply. There are also other measures on the menu. One of these is lending to companies via the banks to reduce the differences between the final interest rates for companies and the yields on government securities with corresponding maturities. Another possible measure, justified by the great significance of the krona exchange rate for the development of inflation, is conducting currency interventions.
But we are also concerned with illiquidity in particular markets when it threatens the stability of the system as a whole. It is this concern that motivates the choice of assets we lend against in both normal and stressed conditions. A loss of liquidity in markets on which the banking system as a whole relies can magnify the mismatch between the maturity of assets and liabilities on banks’ balance sheets. A banking system in which large volumes of funding need to be renewed very frequently is a fragile one, vulnerable each day to a shock stemming from rumours and loss of confidence. And it is in those circumstances that a backstop is needed. The reason for it is not to support individual institutions. It is to avoid an unnecessary loss of confidence in the system as a whole. That backstop is central bank funding when private markets important to the stability of the system have temporarily closed. But central banks are not there to support liquidity in all markets at all times. They are not there to create a liquid market in all financial instruments that traders or some rocket scientist have dreamt up. Nor are they there to maintain indefinitely a market when changes in information or risk appetites make it more difficult to sustain a private market, as in some asset-backed security markets recently.

In the last talk today, Stan Zin will cover how different investors will change asset weights over time. He will also discuss what kind of risks an investor is exposed to through rebalancing and why investors might look at the same risk-reward trade-off differently. All of these exciting papers we will discuss today offer interesting perspectives for academic researchers and practitioners alike. As I argued at the start of my talk here, the challenges facing the management of our fund overlap with the research frontier of financial economics. However, we should not expect final and absolute answers. CAPM, partly developed by our own Jan Mossin, represented a huge leap forward in 1966. Today it has been replaced by better tested theories, just as future research will make today’s research frontier look antiquated. Rounding off the day, the CEO of NBIM, Yngve Slyngstad, will present the Norwegian Finance Initiative. This is part of NBIM’s efforts to build capacity to ensure our strategies have a well-founded theoretical basis. 2  BIS central bankers’ speeches
The experiences indicate that financial crises are something we will have to live with. But to reduce the risks of financial crises, with major socioeconomic costs, central banks and other players need to have the mandates and tools to prevent financial crises, along with flexibility and liquidity when a crisis actually occurs. The challenges facing the Riksbank and other central banks, and which I have tried to describe in this speech, are partly the result of the experiences gained during the latest crisis. But they also have to do with more long-term structural changes in the financial system, such as globalisation and innovations in the mediation of payments and credit. The challenges also relate to monetary policy, and this is something that often receives a great deal of attention in the debate. But, as I hopefully have shown, there are many other and perhaps even more important areas where the need for new thinking is even greater. If you’ve been in the business since 1668, it’s important to think in new ways now and again. BIS central bankers’ speeches  17  References Acharya, V. (2015), “Financial Stability in the Broader Mandate for Central Banks: A Political Economy Perspective”, Hutchins Center Working Paper #11. Archer, D. and P. Moser-Boehm (2013), “Central bank finances,” BIS Papers, No. 71, Bank for International Settlements. Ball, Laurence M. (2014), “The case for a long-run inflation target of four percent,” IMF Working Paper, WP/14/92, International Monetary Fund.

27  For example, Goodfriend and King (2016), p. 98, write as follows: “We do not think it sensible to extend the objective of the central bank to include numerical targets for employment and output. The experience of forward guidance in both United States and United Kingdom suggest that attempts to use numerical values for these variables can crumble in the hands of policymakers within a short period of time.”  28  See Woodford (2012). 29  See Stein (2014), Billi and Vredin (2014) and IMF (2015). 30  See Bryant, Henderson and Becker (2012) and Acharya (2015) for different arguments. BIS central bankers’ speeches  13  factors, on how well the price stability objective has been met and on how effective macroand microprudential policy are when it comes to promoting financial stability. Flexible inflation targeting involves, as I stated earlier, the central bank allowing certain deviations from the target in order to take, for example, output, employment or financial imbalances more into account. But this flexibility is not just something that is there, one has to accumulate it. A prerequisite for using the policy rate for something other than stabilising inflation is that confidence in the inflation target is firmly rooted and that it works as a nominal anchor in the economy. The higher the confidence in the inflation target, the more consideration the central bank can show for aspects other than inflation – the more flexible monetary policy can be.
In some advanced IT countries, the correlation of changes in domestic long-term interest rates with US rates was very strong (over 90%), at the same time as the correlation of domestic short-term rates with long rates was weak – and even non-existent, if lags were taken into account. The GFC reversed this process somewhat, as risk premia skyrocketed, cross-border banking retreated back to home base, and restrictions on capital movements were in some cases reintroduced. But it has come back to a significant degree. There is an important caveat here, which is that the observed patterns could have other explanations. Thus co-movements in asset returns could be due to common shocks and the low level of correlation between short and long rates due to monetary policy credibility. Looking at the totality of the evidence and case studies, however, it seems difficult to escape the conclusion that global financial integration was a big underlying driver, although there were also other factors at play. New Zealand appears to be a relevant example here. During significant parts of the 2000s – before the GFC – the policy rate in New Zealand was raised to counteract demand pressures at the same time as the US maintained an easy stance. New Zealand’s long rates were flat or falling for most of this period. I could tell a similar but slightly more complicated story from my own country.

But as it progresses and we at the global level get closer to the limiting case of free and frictionless capital movements, then real risk adjusted asset returns increasingly become equalised across countries. As that happens, less and less of the transmission of monetary policy goes through what I call the interest rate channel. There would still be an interest rate channel at the global level, but that would be determined by the big countries. The small, open economies that have adopted a floating exchange rate could still achieve their inflation targets through the exchange rate channel. The scope for short run output stabilisation would be more limited, however. Is this necessarily a problem? If the exchange rate channel were relatively well behaved – i.e., if it provided smooth adjustment based on fundamentals and uncovered interest rate parity broadly held over relevant horizons – then the answer might be no. The problem is, however, that experience has shown that uncovered interest parity does not hold except perhaps over long horizons. Interest rate differentials give rise to widespread carry trading, which is by nature a bet against UIP. Exchange rates therefore diverge from fundamentals for protracted periods, followed by sharp corrections. So the exchange rate often seems to be as much a source of shocks and instability as a tool for adjustment and stabilisation.