samchain/econo-pairs-v1 huggingface dataset:
In 1970, a German mark cost about 2 kroner. In 1986/87, it cost about 4 kroner. The exchange rate remained relatively stable in the following years. On the other hand, prices rose twice as quickly in as in Germany from 1970 to 1986. However, prices and the exchange rate were stable in relation to Germany from the end of the 1980s until the German mark ceased to be a currency. A measure of the real exchange rate is the trade-weighted exchange rate index (TWI) in relation to price developments in Norway relative to trading partners. The real krone exchange rate has fluctuated around a long-term average level over the past 30 years. When the krone deviates from the average long-term level, it tends to return to it relatively quickly. Inflation differentials between Norway and other countries have gradually been offset by changes in the krone exchange rate. This relationship has been robust even in the face of significant changes in economic policy. However, the economic policy reform in spring 2001, with the introduction of a new fiscal rule and inflation target, may still have an impact on how quickly prices stabilise in the years ahead. Increased spending of petroleum revenues or expectations of increased use of petroleum revenues can lead to an appreciation of the krone. Increased use of petroleum revenues over the central government budget implies higher demand.

The Maastricht Treaty, by removing national currencies and defining budgetary rules, leads to an important transfer of power from national capitals to European institutions. The French franc, the Italian lira, and the German mark were all symbols of national identity. The euro is now playing an integrating role in people’s minds. In this regard too, the new currency brings a revolutionary dimension. Remember that national currencies were almost always and everywhere brought about by fundamental political changes: the French franc was the “franc Germinal”, the Italian lira was created on the occasion of the Italian unification, and the Reichsmark appeared in 1873 at the foundation of the German empire. These are very strong political symbols indeed. For Switzerland too, the introduction of the euro was a kind of revolution. For the first time in our history, our country was completely surrounded by a single currency area. In terms of population, Switzerland, with its 7 million inhabitants, could be compared to Missouri in the middle of the United States. Just try to imagine Missouri with its own currency! It would not be very realistic. Until 1999, Switzerland had been living amidst very diverse European currencies. In fact, our country had always lamented about this situation. Indeed, given our large export sector, we could only dream of a stable monetary environment without exchange rate fluctuations, which always interfere with economic decisions and distort price comparisons. A common view should be corrected here, that of Switzerland somehow benefiting from external monetary disorders.
In short, the search for yield has broadened and deepened. We have, in one sense, been here before. Pre-crisis, low volatility justified high prices and high prices low volatility. The constellation of asset prices appeared consistent. Larry Summers famously commented that finance theory tells us how to price two bottles of ketchup, assuming you know the price of one bottle.8 Pre-crisis, the second bottle of ketchup looked fairly-valued relative to the first. But even if asset prices are consistent among themselves, this need not imply they are consistent with reality. So it was pre-crisis, as the price of risk became far too cheap relative to fundamentals. With the first bottle of ketchup woefully over-priced, finance theory ensured that the second bottle was similarly marked up. In this way, the seeds of the crisis were sown. 8  9  Summers (1985)  BIS central bankers’ speeches  Stein (2014)  5  The risk of this cognitive dissonance is once again rising. Low volatilities are being used to justify high valuations and vice-versa. The ketchup bottle looks fairly valued relative to other sauces. But what about the price of ketchup relative to fundamentals? Is the price of risk again becoming too low? Or is it the price of safety which this time is too cheap? I do not have clear answers, but I do know these are serious questions. In one sense, rising risk-taking is evidence of the monetary medicine working.

But the Bank’s estimates suggest it may have been more than 6% smaller than it is today. In money terms, we as a nation would have been between £ billion poorer – roughly, the GDP of Yorkshire and Humberside. As defensive measures go, then, UK monetary policy for the past few years has been positively Boycott-ian.1 Since the start of 2013, the economy has begun to respond to the medicine. UK output is estimated to have grown by over 3% in the past year – that is, at the top of the league table  1  Again for the uninitiated, Geoff Boycott was a famous Yorkshire and England batsmen venerated for his defensive technique. BIS central bankers’ speeches  1  among the G7 nations. And growth this year and next is forecast by the Bank to remain around 3%, again at or close to the top of the G7 league table. Output is now just about back to its pre-crisis levels. The employment picture has been even more positive. Over 1.5 million jobs have been created in less than three years. Unemployment has fallen from a peak of 8.4% in 2011 to 6.6% today. It is expected to fall further, to below 6% by 2017. Over the same period, inflationary pressures have abated, with inflation falling from a peak of 5.2% in 2011 to 1.5% today, below the Bank’s 2% inflation target. The Bank’s forecasts suggest it is likely to hover around that target in the period ahead.
Many debt contracts feature floating interest rates; that is, the interest rate on the debt is modified periodically to reflect prevailing market interest rates. But when the contractual language does not contemplate the possibility of negative rates, complications will ensue. In that event, the parties must renegotiate, which is difficult when the parties are highly dispersed, and adjust the contractual language to address what happens when market rates are negative. Another first-order operational problem is how to collect interest from creditors: often debtors have few means of calculating interest payments due from creditors, few easy ways to collect the payment, and a limited ability to enforce negative interest payments from creditors. Given these realities, designing interest-bearing securities at negative yields will require careful planning. This topic alone is worthy of a longer treatment. In fact, my colleague Ken Garbade and I wrote a piece on this topic, and I won’t repeat the many considerations that enter into the design of securities at negative rates. 5 I will point out that because it is so challenging to develop a practical way to collect periodic interest payments directly from holders, one possible work-around is for the issuer of a fixed-rate bond to set the coupon rate to zero, making the bond a single-payment security, and to sell the bond at a premium to its principal value.

As I pointed out earlier, the costs of avoiding negative interest rates by substituting currency for deposits is probably lower for retail depositors than for larger, business and institutional, depositors. Because retail depositors can avoid negative rates on deposits relatively easily, it makes sense not to impose negative rates on their deposits. In addition, many retail depositors may have a visceral negative reaction to being charged negative rates, and may lack a clear understanding of whether their bank is minimizing the costs of storing their deposits. Recognizing these difficulties, the central banks that have negative policy rates offer zero rates on many of their deposits from banks, imposing negative rates on the “marginal” deposits. In this way, commercial banks can, in general, charge their retail depositors deposit rates of zero and earn zero at the central bank on at least a large portion of their reserve holdings. Observers report that retail depositors in Switzerland, Denmark, and Sweden do not face negative deposit rates. At the same time, many large business and institutional depositors do earn negative rates on their bank deposits. This state of affairs opens up new avenues, at least in theory, by which some can avoid negative rates: large business depositors could attempt to impersonate a host of retail depositors. While generally unrealistic, the possibility of such a ploy requires that some effort be expended to prevent that avoidance activity.
Changes in relative term premia are far more difficult to interpret than changes in the expected path of future short-term interest rates. The latter can be clearly associated with changes in monetary policy expectations. 8 / 11  BIS central bankers' speeches  Changes in term premia, by contrast, often reflect a combination of shocks, including monetary policy shocks as well as shocks to demand, risk aversion and other variables, which will drive term premia in the same or in opposite directions. The most recent disconnect between the euro and US dollar exchange rate and the expected future short-term interest rate differential is a case in point. On the left-hand side of slide 7 you can see that a significant gap between the two series re-emerged in the spring of this year, and continues to persist. It is tempting to link recent developments once more to portfolio rebalancing considerations. After all, the Federal Reserve is now actively reducing its balance sheet, while the ECB last week decided to extend its asset purchase programme by nine months, or more, if needed, while reducing the monthly pace to € billion. This might have caused some investors to expect a gradual rebalancing of portfolios away from US dollar-denominated assets and towards eurodenominated assets, which would support the euro. But many other factors may drive interest and exchange rates, with likely different implications for the real economy.19 Indeed, geopolitical and policy uncertainties may also contribute to swings in bond term premia. So it is difficult to establish unequivocal links.

An important, though elusive, indicator of inflationary pressure is the gap between total demand and total output. Most indicators suggest that this gap has become somewhat smaller. In the inflation report, however, the Riksbank judges that the supply of unutilised resources is still relatively good. It is not least the high level of total unemployment that indicates this. A high rate of investment and rapid increases in productivity have contributed, at least to date, to an expansion of potential output to meet the growing demand. This has eased inflationary pressure during the upswing. Inflation expectations Another important indicator of inflationary pressure is the expectations of economic agents about future inflation. Along with actual inflation, these expectations have declined in recent years. They also show a tendency to converge around the 2 per cent inflation target. If this is the case, it is a good sign because it can be seen as increased confidence in the inflation target. This means that to a greater extent, economic agents are basing their own plans on expectations of low inflation, which provides better conditions for monetary policy to fulfil the inflation target. In recent months the expectations of future inflation have tended to move up, but this seems to be mainly an adjustment to the increase in registered inflation. The tendency, however, must be closely watched; a clear increase in inflation expectations above the inflation target would give cause for concern. 3.
However, given the economic transformation of fast-growing countries, such as Japan and South Korea, we see that the contribution of capital accumulation to growth in these countries has been moderate (at around 50 percent), whereas the contributions of employment growth and the increase in total productivity have been higher (at around 25 percent), as compared to Turkey. In other words, Turkey’s efforts for development are mostly based on increasing the current sources of production rather than using them more effectively and efficiently. In a country, where the propensity to save is low, any attempt at development through capital deepening would cause a high level of current account deficit and a restricted increase in employment. At this point, I would like to annotate that the contribution of total factor productivity to economic growth climbed significantly to 30 percent on the back of the reforms and structural transformation implemented in the post-2001 period. I believe that the labor market and total factor productivity are crucial for improving the potential growth rate of Turkey. In the next part of my speech, I will cover these two issues, respectively. 2  BIS Review 104/2010  3. Labor market  As I have already mentioned, the contribution of the employment increase in the growth composition of the Turkish economy is very limited. Although it is often voiced that Turkey’s younger population structure compared to other countries constitutes demographic window of opportunity, non-participation of this young population in the labor market is an important problem that should be addressed.

So it is with the economic medicine of low interest rates and quantitative easing. The immediate consequences may be unpalatable, but the sooner we can get the economy on the mend,  2  For a single male, aged 65. 3  Indeed, if the savings were held in bonds of a maturity structure that matched the likely longevity of the individual, the two effects would cancel each other out. 4  BIS central bankers’ speeches  the sooner we can return policy to more normal settings and the better it will be for all of us – savers, businesses and employees alike. Thank you! BIS central bankers’ speeches  5
The higher performance exhibited by the Turkish economy compared to many other emerging economies during the global crisis and the recent upgrades to our credit rating are mainly attributable to the stability ensured in our financial system. Unlike its peers, Turkey did not require any cash stimulus packages for its banking system against the global financial crisis. The absence of toxic assets in banking balance sheets, strong capital adequacy ratios and considerably low levels of foreign exchange short positions have been the essentials underlying the increased strength of our financial system against the global crisis. Net Foreign Exchange Position of the Banking Sector (B illio n US Do llar)  1.1  0.6  0.1  -0.4  -0.9  -1.4  Source: BRSA. Distinguished Guests, 16. 6  With the problems driven by global turbulence, the domestic and foreign credit conditions in Turkey tightened and Gross Domestic Product (GDP) growth rates have slowed down significantly since the second quarter of 2008 as a result of narrowing domestic demand. Economic activity has experienced hard landings from the last quarter of 2008 to the second quarter of 2009. As the monetary and fiscal measures started to sway, the GDP, after bottoming out, started to recover rapidly as of the second quarter and contracted by 4.7 percent for the overall year. While private investment and consumption expenditures had a negative effect, government spending on consumption goods had a boosting effect on GDP growth in 2009.

Banking produces a particular form of social pollution – financial crises. We have had many hundreds of years of experience of such crises. The global financial crisis will, however, almost certainly require a re-think of their costs. The cumulative GDP costs of the crisis so far in the US, UK and the euro-area are well in excess of 25% of GDP (Chart 8). In net present value terms, they could easily end up equating to a year’s GDP or more. This suggests, pre-crisis, the misalignment between private and social incentives in banking was larger than perhaps at any time in the recent past. In the language of Jensen and Meckling, risk had been shifted by management and shareholders onto a much wider set of societal stakeholders, with significantly adverse macro-economic implications. (b)  Moral hazard  That brings me to the final of the incentive frictions. When the social costs of an activity are high, as during financial crises, there are strong incentives to cushion the effects on wider society. The global financial crisis provides no better example of those incentives, with extraordinary levels of government support to the global banking system in the form of recapitalisation, liquidity support and guarantees. BIS central bankers’ speeches  11  While these levels of support were arguably necessary to limit the costs of the crisis, they came with their own longer-term costs.
Over the past decade, monetary policy has had to assume almost sole responsibility for getting these economies back on their feet. After a few years of solid growth in the euro area, growth has fallen back. The interest rate level in Europe remains low, and monetary policy normalisation will take time. In this environment, new negative shocks would be very untimely for those economies. The policy space available for coping with a new downturn is limited. CONCLUSION To conclude, globalisation, digitalisation and structural changes are facets of the same long-term trend – we are in the midst of a technology-driven growth process that encompasses much of the world. It is easy to focus on the downsides, but we must also keep our eyes fixed on the big picture: never before have so many taken part in a journey with such a great leap in prosperity. But growth is unevenly distributed. The winners in global competition are reaping substantial rewards, while broad categories of wage earners in the traditional industrial economies have been left behind. The harmful effects of rising inequality must be taken seriously. 15  Our friend Kristoffer from the year 2030 awoke to rain and mild weather, and the news that an electronic platform had been hacked. Perhaps the money he had on that platform had vanished. But some of the news was positive. Today’s two major economies, China and the United States, had worked together and made progress in addressing climate challenges.

These topics are of particular importance in the current context in which our economies are undergoing significant changes in the credit market as well as in the behavior of consumers and borrowers. Therefore, it is essential to upgrade financial infrastructures, which constitute a central element in the credit risk management system, in order to accompany these changes and help us to meet the challenges we face. Before concluding, I would like to emphasize the invaluable opportunities that the new information technologies can offer us in terms of data sharing, collection and storage. But they also involve major challenges, particularly in terms of cyber security and personal data protection. I wish you a successful and fruitful meeting, and hope that you can combine business with pleasure and allow yourself some time to discover the millennial richness of Rabat, this imperial city which was listed by UNESCO as a World Heritage Site on June 29, 2012. Thank you for your attention. 3
In order to clarify that the Riksbank did not wish to bring inflation back to the target over the normal two-year horizon, the Riksbank decided on this occasion to place particular emphasis on an inflation measure that was not as strongly affected by the fluctuations in energy prices. How has the strategy worked? So how has this strategy worked, i.e. highlighting on different occasions other indices than the CPI as a way of illustrating that there sometimes may be reason to depart from the rule that CPI inflation should be 2 per cent one to two years ahead? With hindsight we can conclude that despite out attempts to be explicit in our communication, it appears that we haven't got our message across in all respects. The strategy does indeed seem to have been successful insofar as we have seldom been asked, especially in the last few years, why the repo rate has not been changed in spite of an inflation forecast that is above or below target. Sometimes, however, and particularly during a couple of months in autumn 2003, the interpretation has been that the Riksbank has "changed target variable". But this has not actually been the case; the inflation target is and has always been defined in terms of the rate of increase in the CPI, even if we've often made it clear that policy in the time horizon in question has been based on a different index, mainly UND1X.

The problems we encountered in communicating monetary policy, which arose in conjunction with the substantial rate cuts during the second half of the 1990s, were also a significant reason for the Riksbank's decision in 1999 to publish a clarification of the formulation of policy and the application of the inflation target.1 Among other things the clarification specified the situations in which there may be reason to deviate from the simple rule of aiming policy at meeting the target of 2 per cent CPI inflation one to two years ahead. My discussion today is based on exactly the same line of reasoning as in that clarification. The second example is taken from spring 2001. Higher food and energy prices due to foot and mouth disease and mad cow disease, as well as supply shocks in energy production, caused a sharp rise in CPI inflation. The price increases were judged to be temporary, and the Riksbank decided therefore not to raise the repo rate. As the prices rises were estimated to disappear from CPI inflation relatively quickly, there was no need in this case to depart from the Bank's simple rule of monetary policy. However there was a need in our external communication to illustrate clearly the assessment that it was mainly transitory price increases that had caused CPI inflation to be so high above target.