samchain/econo-pairs-v1 huggingface dataset:
Svein Gjedrem: Monetary policy, securities markets and municipalities Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the anniversary seminar, Kommunalbanken, 30 August 2002. Please note that the text below may differ slightly from the actual presentation  *  *  *  In my address today I will touch on three themes. First, I will discuss monetary policy and its influence on municipalities’ financial position, followed by some remarks on the Norwegian bond market and Kommunalbanken AS. I will then conclude with some reflections on the challenges associated with the pension system and the interplay with securities markets. Municipalities’ financial position and monetary policy  Guidelines for economic policy  • Fiscal policy: - guideline for use of petroleum revenues: • use real return on Petroleum Fund • smooth fluctuations in the economy  • Monetary policy: - inflation target  SG Kommunalbanken, 30.august 2002  Norway’s economic policy is based on the guidelines for fiscal and monetary policy. The guideline for fiscal policy states that the use of petroleum revenues over the central government budget shall be equivalent to the expected real return on the Government Petroleum Fund. Most of the phasing in of petroleum revenues will take place over the next ten years. With a 4 per cent return on the Petroleum Fund, the use of petroleum revenues will rise to almost 5 per cent of mainland GDP in 2010.

As percentage of GDP, 2001 30 25 20 15 10 5 0 Ge  rm  any  No  rw a  y  F in  lan  d De  nm  ar k  F ra  nc e  Sw  ed e  n  UK  US  Sources : BIS/OECD SG Kommunalbanken, 30.august 2002  The turnover and issue volume in the market increased sharply up to the mid-1990s. However, Norwegian companies use the bond market on a far more limited scale than companies in comparable countries. Solid state finances also help to explain the limited size of the private bond market in Norway. A well functioning government bond market can stimulate the private segment of the debt securities market. In most countries, the state has a sizeable borrowing requirement, with a high level of debt. Even though its borrowing requirement is small, the Norwegian government also places emphasis on a well functioning bond market in its government debt policy. Government debt issues are confined to few and large standardised loans. This contributes to higher turnover in the secondary market and hence greater liquidity. With ample liquidity and low risk, government bond rates can serve as a benchmark for private bonds. Effective interest rates on government bonds and private bonds 5-10 year maturity. Per cent 9 8  9 8  Private bonds  7  7  6  6  5  Government bonds  4 Ja n .
It will also be necessary to decide when and how to loosen or remove these credit restrictions at low points in the cycle. I am sure that this part will prove to be more popular and easier to sell to public opinion, but it is worth remembering that a buffer can only be released at a low point in the cycle if one has previously been imposed during the boom. In any event, in the light of recent experience, I believe that we can all agree that the consequences of a failure to act by the supervisor is infinitely worse than the alternative, although the appropriateness and timing of measures to restrict credit will always be controversial. Conclusions I would like to finish by reaffirming the Banco de España’s positive assessment of the new real estate credit law. We consider that the strict regulation of its provisions, along with the increase in the information available to customers in the pre-contractual stage, will help to reduce legal uncertainty and the current high level of litigiousness in this market. I would also like to point out that implementation of the law involves, in many cases, promoting a cultural change in customer relations, for which purpose the wholehearted support of the entire organisation is needed, starting with the governing bodies and senior management. All these elements should improve the functioning of the mortgage market to the benefit of customers and institutions.

In any event, it is worth mentioning again that at no point in the crisis did non-performing mortgage loans exceed 6% of the total. Consequences of the application of the law on access to housing The crisis has also reminded us again that the worst business to do is to grant a mortgage to a person who, a priori, is unlikely to fulfil their payment obligations. In economic terms this is bad business for the customer concerned, but also for the institution, which will have to deal with an irregular loan and, possibly, following a lengthy and difficult judicial process, assume the cost of having a property on its books, managing it and paying all the attendant costs. Finally, given the painful situations we have lived through recently, there is no need to spend much time discussing the social effects of such business. Precisely because of the asymmetric positions of the lender and borrower in the contractual relationship, the new law provides that incorrect assessment of solvency will not entitle the lender to terminate, rescind or modify the loan agreement. That is to say, the responsibility for analysing the ability to pay falls entirely on the institution, and not on the customer. The law also protects the debtor who is unable to make payments, by making enforcement of mortgages in the event of default more complicated. Naturally, all these legal provisions reinforce the idea that extreme caution must be exercised when granting new loans.
The share of the external debt in GDP accounts for 42.0%, which ranks the Republic of Macedonia in the countries with moderate to medium degree of indebtedness. Sound and stable banking system in the Republic of Macedonia In 2000, the banking sector of the Republic of Macedonia continued to recover from the adverse effects caused by the external shock in 1999. The share of high-risk credits in the total credit exposure of the banks in the first nine months of 2000 reduced by 4.1 percentage points, however, still remaining high at the level of 37.3%. Nevertheless, the high average capital adequacy ratio of 33.8% at the end of September 2000, positively affects the banking system stability, by far exceeding the required minimum of 8%. Significant investments of foreign capital in the Macedonian banks was registered in the first six months of 2000, increasing the share of the foreign capital in the total banking capital from 19% to 33.3%. In 2000, the legal framework regulating the banks’ operations was subject to fundamental improvement. In that context, the newly adopted Banking Law in July 2000 is of great importance, in which preparation the National Bank of the Republic of Macedonia had a considerable contribution. This Law represents a step towards the harmonization with the European legislative and the European Union Directives and achieves greater degree of compliance with the so-called Core Basle Principles for Effective Banking Supervision. In November 2000, certain changes were made in the regulation on banks’ foreign exchange operations, as well.

The total non-government sector deposits (including the demand deposits) are planned to increase by Denar 5,139 million or by 13.6% in 2001. The deposits growth should result from the increased confidence of the economic agents in the banking system, as a result of: •  Stable macroeconomic environment  •  Increased income of the economic agents resulting from the projected acceleration of the economic activity  •  Initiation of bond repayment process of so-called “old foreign exchange savings”  •  Modification in the legal framework regarding the operations of the Insurance Deposit Fund, which has been transformed into a state fund. Moreover, the amount of the insured deposit, and the indemnfication percentage in case of risky event have been increased, as well  •  Increased presence of foreign investors in the banking system of the Republic of Macedonia. Analyzed by currency denomination, in 2001, Denar and foreign currency deposits are projected to increase by Denar 3,139 million, or by 12.0%, and by Denar 2,000 million, or 17.5%, respectively. Namely, following its introduction in the first half of 2002, the Euro will replace the currencies of the EMU member countries. This will result in enhanced Euro conversion of the households' foreign currency deposits currently denominated in these currencies and not deposited in the banking system. Hence, part of the converted savings are expected to remain within the banking system, increasing the foreign currency deposits.
6  BIS central bankers’ speeches  Interest rate paths and communication Our problems in maintaining a balance in economic policy in Norway are nonetheless still small compared with the challenges facing other countries. Key rates are close to zero in many countries, and a number of central banks have employed unconventional tools. Unconventional monetary policy tools have taken two main forms: the first expansion of monetary policy is often referred to as quantitative easing, or balance sheet policy. I spoke about this when I was here a year ago. The second expansion involves communication with regard to monetary policy. This has become a particularly relevant topic as the central banks in the US, UK and euro area have increasingly signalled their policy intentions, known as «forward guidance». 10 In Norges Bank we have openly communicated our view of interest rate developments ahead for many years. The Bank’s interest rate forecasts have been published since 2005. The way in which large central banks abroad now communicate policy intentions is similar to ours, but there are also differences. As a central bank, we can influence the shortest money market rates by changing the key policy rate. Saving, investment and consumption decisions taken by households and enterprises, however, are influenced by expectations regarding future interest rates, i.e. the yield curve. Monetary policy is more effective when market participants know and understand the central bank’s response pattern.

Specific signals from central banks concerning the likely path of the interest rate can result in lower market rates through lower key rate expectations. Risk premiums may also decrease. The Federal Reserve, and recently the Bank of England, have also developed central bank communication by linking any introduction of monetary policy tightening to specific unemployment thresholds. In August, the Bank of England clearly stated that it does not intend to raise the key rate until the unemployment rate falls below 7 percent. But the promise was not without conditions. Significant changes in the prospects for inflation or  10  The forms of forward guidance have been referred to as either «Delphic», after the oracle at Delphi, or «Odyssean», after Odysseus, who bound himself to his ship’s mast to avoid the seductive song of the Sirens. Delphic guidance means only stating what you believe about future interest rates. Odyssean guidance also includes a binding promise about future interest rate developments (see Campbell, J. et al. (2012): Macroeconomic Effects of Federal Reserve Forward Guidance. Brookings Papers on Economic Activity, Spring 2012). BIS central bankers’ speeches  7  financial stability may lead to monetary policy tightening before unemployment falls below 7 percent. 11 In theory, the announcement of such thresholds could be particularly effective when the central bank’s normal response pattern implies that monetary policy would have been tightened before the threshold had been reached.
We can only strengthen the euro area, to the benefit of all, if all member countries imagine themselves in comparable positions behind a veil of ignorance. This is why resetting all our economies onto a path of sustainable rebalancing is essential. Sustainable rebalancing is key to reducing risks. It is key to creating the preconditions for all euro area countries to stabilise, grow and converge. And it is key to laying the groundwork for Economic and Monetary Union to be completed. The euro area has been going through such a rebalancing process for several years now. So what I would like to do in my remarks is review where we stand today. How far has rebalancing come? Is that rebalancing sustainable? And, if not, what do we need to do to make it sustainable? These questions do not only matter for the euro area. They matter for the rest of the world as well, since rebalancing has important implications for global growth. If every economy were to react to their domestic challenges by exporting their slack, it would only trigger a race to the bottom. Therefore, only through achieving a truly sustainable rebalancing can the euro area start generating rather than absorbing global demand. Dimensions of sustainable rebalancing So what is sustainable rebalancing? There are four aspects we need to consider. The first is that external and internal rebalancing are twin concepts. For rebalancing to become truly sustainable, progress on both fronts is required.

But it also highlights the continuing importance of product market reforms, such as completing the single market, which open up services markets to competition. This would encourage intra-sector reallocation among the most productive firms. And by making services more tradable, it would mean that employment growth in that sector would also contribute to rebalancing. Second, despite the flow improvements, external imbalances in stock terms remain high. The net international investment position (NIIP) of most countries with large net foreign liabilities has stabilised, thanks to current account improvements. But it has not yet fallen towards safer levels. All five (former) programme countries still have a negative NIIP in excess of 90% of GDP, and in some cases much greater. The NIIP of major surplus countries, such as Germany and the Netherlands, has also continued to grow. That suggests further adjustment is still needed to achieve a sustainable external position. European Commission projections suggest that the NIIPs of Greece, Spain, Cyprus and Portugal will remain at levels associated with substantial external vulnerabilities over the next decade.8 To meet the threshold specified in the Macroeconomic Imbalances Procedure – which is an NIIP/GDP ratio of –35% over a 10-year period – each would have to make substantial improvements. It is also important to note that internal debt levels – the debt a country owes to itself – remain high as well in several countries. For example, in Spain more than 60% of public debt and 80% of private sector debt is held by Spanish residents.
Would you like to be able to inspect Member States’ budgets prior to their adoption by national parliaments as the Commission proposes to do? Each institution has its own responsibilities. The ECB is very closely involved in the work of the Commission and the Eurogroup. I support the Commission’s proposal, which I consider to be perfectly aligned with the goal of improving governance in the euro area. I have noticed some negative reactions, in particular in France, and I don’t understand this, especially in a country that has a tradition of favouring a strong “economic governance”. 2  BIS Review 76/2010  Can non-democratically elected bodies grant themselves a supranational inspection right? The governments of the Eurogroup all stem from a democratic process! They are the ones who, following any clarifications from the Commission – and where necessary from the ECB – take the decisions. Economic and Monetary Union includes a very close supervision and, when necessary, injunctions and sanctions imposed collectively by the governments participating in the Union. We are interdependent, which means that bad management on the part of a single member leads to problems for all of the others. Austerity plans are multiplying in Europe but certain economists are warning against an overzealousness that could jeopardise growth. What is your view on this? When a household systematically spends more than it earns, so that its debt rises exponentially, its situation is clearly untenable. Correcting this situation demonstrates both wise and sound judgment.

HICP inflation, excluding energy and food, will remain very high until the end of 2022, but thereafter it is expected to decline as the upward pressures from the economic reopening subside and supply bottlenecks and energy input cost pressures ease. The ongoing economic recovery, tightening labour markets and some effects from compensation for higher inflation on wages – which are expected to grow at rates well above historical averages – imply high underlying inflation until the end of the projection horizon, although the baseline assumes that longer-term inflation expectations will remain well anchored. In any event, the risks to the inflation outlook remain on the upside and have intensified, particularly in the near term. In the medium term, these risks include a protracted worsening of production capacity in the economy, persistently high energy and food prices, inflation expectations being revised up above the target level and larger than anticipated wage increases. However, a decline in demand over the medium term would ease the inflationary pressures. Under the downside scenario that I mentioned earlier, reflecting the possibility of a severe disruption to European energy supplies, inflation averages 8.0% in 2022 and 6.4% in 2023, before dropping below the baseline projection to 1.9% in 2024.
Low interest rates reduce borrowing costs, making it easier for indebted Norwegian firms and households to weather a demanding period. As the situation normalises, low interest rates will support a faster rebound in activity. This may reduce the risk of unemployment becoming entrenched at a high level. Chart: Activity will pick up gradually This chart shows the projections from the monetary policy meeting on 6 May and the projections published in early March. As we can see, the outlook for the Norwegian economy changed markedly in the course of a few weeks. Uncertainty about the economic outlook is unusually high. We have assumed that the containment measures will be gradually scaled back and that activity in the Norwegian economy picks up ahead. But it will nonetheless take time for activity to return to its pre-pandemic level. Chart: Unemployment is expected to decline Unemployment has risen to a very high level. Many of those now out of work have been furloughed temporarily. As containment measures are scaled back, many of these employees are likely to return to their jobs. Nevertheless, there is reason to expect that a number of businesses will have to close, with furloughed employees made redundant. Our assessment is therefore that it will take time for unemployment to fall back. Chart: Prospects for low wage growth High unemployment affects the prospects for wage growth. Unemployment is at a historically high level, profitability has declined substantially in much of the business sector and oil prices have fallen.

As you may be aware, Zambia has in the recent past recorded macroeconomic stability and growth in the economy, reflected in low and falling inflation, relative stability in the Kwacha exchange rate, falling lending rates and positive real GDP growth rates underpinned by strong private sector investment in all growth or priority sectors. Further, the financial sector has been stable, and continues to post growth. In 2006, the performance of the Zambian economy continued to be encouraging as it registered a positive growth of 6.2% in real GDP, marking the eighth consecutive year of positive real growth. You will note that over the period 2001-2006 growth in real national output averaged 5.0% per annum and was above the average population growth over the  BIS Review 113/2007  1  same period, while inflation declined to 8.2% in December 2006 from 15.9% in December 2005. Distinguished journalists, it is worth-mentioning that the growth, which has been broad-based has extended beyond the recovery of the mining sector and shown resilience to adverse shocks, such as droughts and record increases in oil prices, Agriculture, construction, transport and communications, and tourism sectors have been the other key contributors to the sustained increase in economic activity. A lot of progress continue to be made on the inflation front, as shown in September 2007, when inflation declined to 9.3% despite having risen to 12.7% in March.
Gertrude Tumpel-Gugerell: Elements for intervention on accounting issues Speaking notes by Ms Gertrude Tumpel-Gugerell, Member of the Executive Board of the European Central Bank, at the colloquium “La juste valeur dans tous ses Etats”, organised by the Académie des Sciences et Techniques Comptables et Financières, Paris, 27 April 2010. *  *  *  Which are the issues related to the fair value for companies? Fair value is an appropriate measurement for certain financial instruments, notably those that are held for trading (i.e. business model is to generate profits by buying/selling in the short term) and for which reliable market prices are readily available, as well as for derivatives. Indeed, given that many derivative contracts have a zero cost at inception, fair value accounting is crucial as it recognises the potential leveraged exposure on the balance sheet. Fair value accounting mainly raises two issues: first, when to apply fair value measurement (conceptual considerations) and second, how to apply fair value measurement (operational challenges). First, in our view fair value accounting does not provide decision-useful information to investors if the intention of an entity is to hold the assets until maturity or to settle the liabilities at their nominal amount at maturity. In these cases, recognising interim fair value changes simply heightens the volatility of the financial accounts, without providing actual “information content”. This is typically the case for the loan book of commercial banks.

There is a near-consensus in the literature that expenditure cuts have a smaller adverse impact on the economy than revenue increases. 11 Fiscal consolidation, moreover, produces long-term benefits since a smaller debt stock results in lower interest payments, and thus can eventually create room for growth-enhancing tax cuts. 12 General government expenditure amounted to EUR2.5 billion in 2009, or almost 44% of GDP. The largest single item was the wage bill, equivalent to 14.5% of GDP. It was followed by spending on benefits, mainly old age pensions, which amounted to some 13% of GDP. Health care, excluding wages, absorbed a further 2%. These three items together account for more than two-thirds of government spending. In contrast, an amount equal to only 2.2%  10  See European Commission, Public Finances in EMU 2010, European Economy 4/2010. 11  For example, according to the IMF, “spending-based deficit cuts, particularly those than rely on cuts to transfers, have smaller contractionary effects than tax-based adjustments”. See IMF World Economic Outlook October 2010, Chapter 3, p. 113. 12  See also European Central Bank “The effectiveness of euro area fiscal policies” Monthly Bulletin July 2010. BIS Review 156/2010  5  of GDP was dedicated to investment. A substantial increase in productive investment, particularly in physical and human capital, is clearly necessary. The Budget for 2011 recognizes this need, projecting a marked increase of 15% in capital spending. This is encouraging because in recent years growth has mainly occurred in recurrent spending.