samchain/econo-pairs-v1 huggingface dataset:
Dimitar Radev: It is extremely important to achieve the highest possible synchronisation of monetary and fiscal conditions in Bulgaria. With a clear direction of the monetary policy, the focus falls on the upcoming budget decisions Speech by Mr Dimitar Radev, Governor of the Bulgarian National Bank, at the opening of the "Banks and Business" Conference, organised by Capital newspaper, Sofia, 1 December 2022. *** Dear ladies and gentlemen, I am going to speak briefly about three subjects: macroeconomic environment dynamics; the state of the banking sector; and the path to the euro area. Macroeconomic environment dynamics The dynamics of the macroeconomic environment is strongly influenced by internal political and geopolitical factors. The unknowns surrounding the development of these factors increase the risks, and the uncertainty respectively, of macroeconomic assessments and projections. Such an environment entails, inter alia, an appropriate calibration and harmonisation of monetary and fiscal policies. The monetary policy outlook is clear. In brief, this outlook relates to the increase in interest rates and the gradual withdrawal from the unconventional measures that have been implemented in the past few years. For a quite some time now the real question has not been about the monetary policy direction anymore but about the parameters of the monetary policy tightening. These parameters seem to range between the neutral and the restrictive levels of interest rates. The purpose of this exercise is clear: to curb and reduce inflation down to healthy levels by limiting the demand which central banks can influence.

Growth among trading partners seems on the whole to be approximately as expected in the June Inflation Report, but the risk of more sluggish developments has increased, according to the IMF and the OECD. High oil prices may result in somewhat higher inflation abroad than previously projected. The objectives of bringing inflation back to the target of 2.5 per cent and anchoring inflation expectations imply a continued low interest rate. On the other hand, there are expectations that high output growth will persist. The objective of stabilising developments in output may, in isolation, imply a higher interest rate. Inflation is gradually picking up. High capacity utilisation may generate a continued sharp rise in property prices and household borrowing. This could be a source of instability in demand and output in the somewhat longer run. The Executive Board’s assessment in the June Inflation Report was that the interest rate may gradually – in small, not too frequent steps – be brought up towards a more normal level if economic developments are approximately as projected in the Report. Such an interest rate path was considered to provide a reasonable balance between the objective of stabilising inflation at target and the objective of stabilising growth in output and employment. It was the Executive Board’s assessment that the sight deposit rate should lie in the interval 1¾ - 2¾ per cent in the period up to the publication of the next Inflation Report on 2 November.
An ordinary person, with a few hundred or a few thousand dollars to invest, may find it perfectly convenient to invest in currency, and to store most of it in a safety-deposit box, one that the person may well have already rented to store important papers or other valuables. A large corporation, in contrast, likely would find dealing in  BIS central bankers’ speeches  3  currency extremely costly. So the proposition may be refined further to state that different economic agents will be more or less willing to invest in negative rate investments to the extent that diseconomies of scale make their costs of handling currency higher or lower than others’. Vaults introduce some additional considerations affecting the costs of holding currency. Often, the costs of holding currency securely, by having a safety deposit box or a vault, are fixed costs. Once one has a vault, or has rented a safety deposit box, the costs of storing additional currency in it, up to its capacity, is nil. This suggests that there is a dynamic element to the economics of avoiding negative interest rates: the longer the negative rates are expected to persist, and the lower they are, the more favorable are the returns to investing in a vault. Once the vault investment has been made, maintaining negative rates would likely become more difficult.

The problem is that the conventions evolved for a positive interest rate environment, and efforts to reverse the direction of these incentives can lead to bad economic outcomes for society. Furthermore, it is costly to change these conventions. In many economic arrangements, including debt and tax payments, people can prepay debts or tax obligations, or make excessive payments on them, and earn a zero return during the prepayment period. For example, suppose that one holds a credit card under existing U.S. rules: one can withdraw funds from an account that is earning a negative rate, and pay one’s  5  Kenneth Garbade and Jamie McAndrews, “Interest-Bearing Securities When Interest Rates are Below Zero,” Liberty Street Economics blog, May 4, 2015. 6  “NEGATIVE INTEREST RATES ON MORTGAGES” Working Group on negative interest rates on mortgages, Business and Growth Ministry, Denmark https://www.evm.dk/~/media/oem/pdf/2015/15–04–28-negativerenter.ashx. 6  BIS central bankers’ speeches  debt to the credit card company in advance of when it is due, earning a zero return during the prepayment period. Similarly, one can make excessive tax payments to the taxing authority, and earn nothing during the period before one receives a refund, thereby avoiding negative deposit rates at banks. Such “zero nominal rate” conventions abound in society, and the lower the negative rate, the more people will search for such ways to avoid the negative rates that might prevail elsewhere.
Unfortunately, I do not have the time to elaborate on the first question. Instead I will say a few words about the second. Although the discussion about monetary policy and a productivity shock is taking place mostly in the United States, in the light of the impressive economic performance there and the acceleration in the rate of productivity growth, one could certainly ask: What about Europe? Europe is, on the one hand, now in a strong upward economic phase. In addition, new technology, especially the Internet and telecommunications, is gaining ground in many European countries. On the other hand, Europe also differs from the US. The rapid growth of US investment has not yet been seen in Europe. One could also argue that the existence of quite a few structural obstacles in Europe makes an acceleration of productivity growth less likely in the immediate future. A handful of countries - including the Netherlands, Ireland, the UK and, more recently, Sweden and Finland - have achieved strong economic growth and in some cases also low inflation. But with the BIS Review 50/2000  2  exception of Ireland, these countries have not yet enjoyed the same strong productivity growth as the US. Nevertheless, the possibility of a productivity breakthrough also in Europe cannot be ruled out. It will probably depend on how well Europe succeeds in reforming microeconomic policy. Higher - or accelerating - productivity growth does indeed pose new challenges for monetary policy.

Put somewhat pointedly, the statement that monetary policy cannot be ‘the only game in town’ that has been heard quite often recently, perhaps particularly from central bank representatives, is basically about us not ending up in a situation where instead fiscal policy will be the only game in town for the foreseeable future. Both will certainly be needed. However, there are also good reasons other than the development of inflation that suggest that fiscal policy may have to play a more active role in the future. One is that we have major structural challenges ahead of us: the population is ageing and this means that healthcare will need more resources, the integration of different groups into Swedish society and the economy needs to be improved, and climate change will require major adjustments – to name but a few. Here, it may be worth recalling what I mentioned earlier about the original motives for using a surplus target to reduce public debt. This was not just a matter of restoring confidence in public finances, but also of creating room for both stabilisation policy and managing structural challenges. Measures in these and other areas aim to make the Swedish economy and Swedish society function better in various respects. Many of them also aim to increase growth and production capacity in the long term – what are usually called supplyside policies. When aggregate supply and production capacity increase, conventional economic theory suggests this puts downward pressure on prices for a  20 Ekonomisk Debatt (1995) No. 3, p. 268.
The currency played a significant role, both in the build-up to the crisis and during subsequent stabilisation and recovery. The currency crisis materialised in an over 50% depreciation of the króna over the course of 2008. It hit highly indebted corporate and household sectors, a large share of whose debt was either denominated in or linked directly to foreign currency, or linked indirectly to it through price indexation at a time of strong and rapid exchange rate passthrough. The contractionary balance sheet effects of the currency depreciation were therefore substantial. Hence the need to stabilise the exchange rate, which was achieved in the middle of 2009. But the real depreciation – which took the real exchange rate to around 30% below its historical average for a time and left it at the current level of around 20% below that average – compressed imports and provided some stimulus to exports, thus helping to turn a double-digit current account deficit into an underlying surplus. But the stimulus to exports is limited by the fact that Iceland’s major export industries, such as fisheries and energy-intensive metal smelters, face capacity constraints that can only be lifted through investments that have been rather limited so far. 4  BIS central bankers’ speeches  BIS central bankers’ speeches  5  A very important and somewhat novel element of the successful policy response was the interplay of fiscal consolidation, monetary policy, and capital controls. The crisis dealt a heavy blow to government finances in Iceland, as can be seen from Figure 5.

8  BIS central bankers’ speeches  The Icelandic authorities have a strategy in place to lift the capital controls gradually, as conditions permit, without unduly undermining exchange rate and financial stability. The strategy is currently under review. It is clear that the process will be significantly affected by how the króna problem associated the winding up of the old banks is dealt with, as an amicable solution could greatly expedite the removal of the controls. But the basic thinking will remain the same. The first element is to secure the framework conditions for lifting the controls, such as at least balanced public sector finances, an underlying current account surplus, and adequate FX reserves. All of this is either in place or well on its way. The second element is to put in place the economic policy frameworks and prudential rules that will make it possible for Iceland to deal with the risks associated with free and volatile capital movements. That is also underway. The third element is to reduce the overhang of liquid offshore krónur to a safer level, either through release at a discount or by tying the offshore krónur up in longer maturities and real investments. That is underway as well, although some are of the view that the process is too slow. The fourth element is to open market access and, through other means, generate longer-term inflows to replace the capital that wants to leave. History shows that those who jump early on such a bandwagon have a lot to gain.
In addition, it made our communication better aligned with our analytical framework and with theory. [Chart: Our interest rate forecast is conditional] Our forecast for the key policy rate 9 is presented in a panel together with forecasts for inflation and the output gap. The chart shows the forecasts in the most recent Monetary Policy Report, published just two weeks ago. There is substantial uncertainty associated with the projections, as illustrated by empirically based fan charts. The fan chart for the policy rate also illustrates the conditionality of the forecast: Although we control the key interest rate, the forecast for the interest rate is conditional on the outcomes for other variables, which are uncertain. [Chart: The system for monetary policy analysis and forecasting] When we decided to publish our own interest rate forecast, more transparency and documentation were required regarding our models. Our core policy model, NEMO (Norwegian Economy MOdel), is used as a starting point to derive our interest rate forecast. Over time, we have also established an apparatus for nowcasting 10 in order to steadily improve our assessment of initial conditions. In addition we collect information about the current economic situation from our regional network of business contacts. A set of models are used for cross checks and the assessment of exogenous assumptions. Our core policy model NEMO is a New Keynesian dynamic stochastic general equilibrium (DSGE) model for a small open economy. The model has many features that are similar to corresponding models in other central banks.

As a long-term and global investor with ownership stakes in several thousand companies, it is in the GPFG’s financial interest that portfolio companies succeed in adapting to the risks and opportunities that climate change entails. Norges Bank supports the strengthening of the work on climate risk in the GPFG. Responsible investments and active ownership will be key in this regard. Active ownership is directly aimed at the primary source of the GPFG’s climate risk, namely its portfolio companies. Norges Bank’s responsible investment shall be based on the long-term goal that investee companies align their activities in a way that is consistent with global net zero emissions in accordance with the Paris Agreement. 1/2  BIS central bankers' speeches  The GPFG’s size gives it strong access to company boards. The GPFG is among the ten largest owners of around half of its portfolio companies, and it is our experience that when we talk, the companies listen. Through active ownership, Norges Bank will be a driving force for the companies in the portfolio to align their business models towards a long-term goal of global net zero emissions. To this end, the Bank will strengthen our work on analysing decarbonisation pathways for individual companies and use these analyses in our follow-up of companies. It will not be the case that we will automatically divest if active ownership does not have the desired outcome. But in some cases, divestment may be relevant. In the period 2012–2021, Norges Bank made 366 risk-based divestments.
Since 9 August 2007, we at the ECB realised that we were facing a very serious situation and drew all the lessons for such events not to be repeated. The same experiences lead me to think that crisis management is essential and that it requires a lucid diagnosis as well as the ability to act not only wisely and decisively but also in a quick fashion whenever and wherever it is necessary. These are times where quick decisions are indispensable because the adverse consequences of a delayed – albeit right – decision may be considerable. Central banks, on both sides of the Atlantic, have in my opinion been lucid in their judgement of the situation, bold in their decisions and quick to take these audacious actions. Let me only mention yesterday’s decision to provide broad access to liquidity and funding in dollars. We are doing – and will continue to do – everything that is necessary to supply the requisite liquidity while preserving the solid anchoring of inflation expectations. However, we cannot, and should not, assume the role of executive branches. It is time for all of us to take action – private sector as well as public authorities – at the global level. From this standpoint, I am impressed by the concision of the Plan of Action that I signed, together with Ben Bernanke, Ministers and Governors of the G7 in Washington last Friday. This unusually concise five point plan shows that this is time for immediate action and not for eloquent rhetoric.

Public authorities must be alert, decisive and effective at a global level: this is not a problem of the industrialised countries alone; this is a global issue that has to be addressed  6  BIS Review 123/2008  with the full participation of the emerging countries. At the same time, private financial institutions and market participants must behave wisely, prudently and with a solid sense of responsibility. It is time to keep our composure. I thank you for your attention. BIS Review 123/2008  7
With such high volatility in value and opaqueness, it poses great risks to the parties in accepting cryptocurrencies as a store of value or means of exchange for goods and services. (c) Unit of account: With very high volatility and limited use as a means of payment, it is hard to envisage how any society could adopt crypto-currencies as a unit of account. 5. As far as I can see, crypto-currencies are not qualified to become money based on the analysis mentioned above. It is not a question of time that they can become more widely accepted as money. Quite the contrary, the design of these crypto-currencies, such as Bitcoin, is such that the transaction time and costs would go up if more people use or transfer them. Unlike other forms of electronic money using central bank or commercial bank balances, crypto-currencies are not scalable, which undermines its prospect of gaining “moneyness” over time. For this reason, I would like to call these “crypto-currencies” as crypto-assets for the rest of our discussion as they do not qualify to be called “currencies”. 6. Having concluded that crypto-assets do not qualify as money or currencies, let me highlight a couple of challenges that they present to supervisors and policy makers around the world: 2/4  BIS central bankers' speeches  Financial stability risk: The Financial Stability Board (FSB), of which I am a member, has recently presented its assessment to the G20 Leaders.

As a result, these commodities have a low degree of “moneyness” and cannot be regarded as “currencies”, other than in exceptional times, such as wars or crises in which the mainstream “money” is no longer trustworthy or usable. 1/4  BIS central bankers' speeches  4. Now let’s get back to the theme of my remarks: to what extent crypto-currencies can serve as money and will they become a credible alternative to traditional forms of money? So it would be useful to measure them using the benchmarks I have just talked about. Medium of exchange: Crypto-currencies are not readily accepted as a medium of exchange. Despite sporadic news that appear from time to time, we have seen no real evidence that crypto-currencies are widely used as a medium of exchange in the purchase of goods or services in any meaningful scale. While it is true that cryptocurrencies such as Bitcoin have attracted many investors and speculators around the world who own and trade them, it is very different from such crypto-currencies being accepted as a medium of exchange. As a matter of fact, Bitcoin is a very inefficient means of payment for several reasons. First, as Bitcoin operates in a decentralised network, each Bitcoin transaction needs to be validated by the so(a) called “miners”, who need to solve a complex maths problem using specialised computers. It takes a lot of time and consumes considerable electricity to complete a transaction. Currently, the average transaction time is some 20 minutes per transaction.
The challenge now is to extend this activism to groups that have suffered during the crisis, in particular younger people and the low skilled. Key measures here include reducing labour market duality and shifting from passive labour market policies, such as unemployment benefits de-linked from incentives to find a job, to active ones, such as job search assistance and training. Improving the conditions for cross-border labour mobility will also be key, especially in those countries that are ageing more rapidly. For example, the OECD projects German potential growth to decline to below 1% soon after 2020 on account of skill shortages.8 In addition, higher immigration may imply stronger private demand dynamics, including higher demand for investment spending. Third, total factor productivity is unlikely to reverse its downward trend without structural reforms to improve resource allocation. By fostering competition and reducing economic rents, such reforms ensure that resources – and rewards – flow to high productivity sectors, which in turn supports innovation and technological progress. A recent study found that increasing competition in tradable and non-tradable sectors in Italy could increase output by 4.0% in 5 years and 7.7% in the long run.9 Moreover, one explanation for the low TFP growth before the crisis was that structural barriers were slowing down the adoption and diffusion of information and communication technology (ICT), in particular in the services sector.10 Reforms to deepen market integration between euro area countries – such as implementing the Service Directive in full – could therefore provide a boost to productivity through this channel.

Fiscal policy is necessarily constrained by high debt levels. And while the private sector undergoes a period of deleveraging, we cannot – and should not – expect to see a return to the debt-fuelled aggregate demand growth of the past. This means that to revive growth we have to look mainly to the supply capacity of the economy – that is, its potential growth. And here the situation is not encouraging. According to the European Commission, potential growth in the euro area has fallen from 2.2% in 2000–07 to 0.9% in 2008–12. We need to do everything in our power to reverse this situation, and what I would like to discuss in my remarks today is how we can achieve this. Why has potential growth fallen? Let me start by briefly reviewing why potential growth has contracted during the crisis and the challenges this creates for policy makers. In doing so, I will use a broad definition of potential growth, namely the economic activity that can be sustained by means of the available production factors – capital, labour and technology – without engendering inflationary pressures and/or fuelling asset price boom-busts. Starting with capital, investment has been one of the main casualties of the crisis, with total investment shrinking by more than 15% in the euro area since its peak in 2008. This is of course to some extent cyclical, as well as reflecting a necessary correction of previous overinvestment in the construction sector.