samchain/econo-pairs-v1 huggingface dataset:
Reports from the Bank’s regional Agents indicated that business sentiment had deteriorated sharply, and the CBI October Industrial Trends Survey showed that optimism about business conditions among manufacturers fell to its lowest level since 1980. The possibility of a recession was widely discussed. The MPC responded to the change in sentiment and to worsening conditions in the world economy. It reduced interest rates by 2½ percentage points between October 1998 and June 1999. There has been a marked turn around in sentiment during this year. Confidence measures have returned to their pre-October 1998 levels. This volatility in sentiment, is not reflected in the statistics on economic growth. The latest estimates of output for the UK show that over the past two years, output growth has been steady and close to trend with the exception of two quarters (1998 Q4 and 1999 Q1) during which a run down in stocks temporarily reduced growth. In part this stability was the result of pre-emptive monetary policy which, by reacting to the forward-looking information in surveys and other data, was able to offset the volatility in confidence feeding through to the real economy. For sometime now, the high level of sterling together with falling world commodity and food prices have restrained retail price inflation. The prices of imports into the UK fell by 15% in the past four years. It is inevitable that this favourable impact on inflation can be only temporary.

Coordination between monetary and fiscal policy  An occasional criticism of the new arrangements is that they impede proper coordination of monetary and fiscal policy. Two main reasons are usually advanced. First, the monetary and fiscal authorities may have conflicting objectives which they are free to pursue. Second, even if they have the same objectives they may be uncertain of each other’s intentions. Neither concern is, I believe, well-founded. The first stems from a line of academic thinking which assumes that the central bank attaches more importance to the control of inflation than the Government, which in turn gives greater weight to output and employment. Hence when setting interest rates and fiscal policy, the two authorities could be pulling in opposite directions, and, realising this, might pull harder to offset the actions of the other, resulting in a distorted policy mix. Although such an outcome is possible in principle elsewhere, this problem does not arise in the UK. The reason is simple. The Chancellor sets the objectives for both fiscal and monetary policy. It is the Chancellor who sets the inflation target and then delegates the responsibility to achieving that to the Monetary Policy Committee. So no conflict arises. Nor are the two authorities unaware of what the other is doing. A Treasury representative attends meetings of the MPC, and one of his duties is to brief the Committee on fiscal policy developments. This may take the form of advance notice of the overall fiscal stance to be announced in the Budget.
Chart 8 Euro area output gap  Measures of the euro area output gap across a suite of models (percentage of potential output)  Sources: European Commission’s Autumn 2022 European Economic Forecast, OECD’s June 2022 Economic Outlook and IMF’s November 2022 World Economic Outlook. Quarterly estimates are interpolated from annual data. An alternative way of analysing whether supply capacity has fallen is to examine the possible effects of individual adverse supply shocks. ECB staff recently conducted a series of studies which suggest that shocks analogous to those seen in recent months are likely to have limited effects on potential. The studies found that even significant hypothetical negative shocks such as deglobalisation[15] – and the associated global supply chain disruptions – or a permanent and large increase in oil prices[16] would induce only a moderate downward revision in the level of potential output in the euro area after four years, ranging from -0.3% in the first case to -0.8% in the second compared to the baseline scenario without these shocks. [17] These effects need to be set against a projected cumulative increase in potential output of around 5% over the same period, as estimated by the European Commission. Similarly, analyses focusing on the euro area labour market suggest that the shocks we have seen in recent years – in particular, the pandemic – do not seem to have left lingering scars on labour supply and potential output, for instance, by triggering early retirement. [18] As always, such estimates are surrounded by considerable uncertainty.

First, conducting monetary policy based on the view that potential is permanently lower – without clear evidence that this is the case – could prove self-fulfilling and costly. The evidence increasingly shows that destroying demand also affects supply. Research on recessions over the last fifty years has found that deep contractions – including those driven by monetary policy – lead to long-lasting effects on real GDP compared to the pre-contraction trend. [20] This suggests that current macroeconomic policies should be designed to avoid unnecessarily heightening the risk that the increasingly likely contraction in coming months becomes a severe and protracted one, which would scar the economy. This requires that energy and fiscal policies remain targeted and contribute to dampen inflationary pressures, helping to keep inflation expectations anchored while preserving productive capacity. But it also requires that monetary policy does not ignore the risks of overtightening. [21] If we were to compress demand in an excessive and persistent manner, we would face the risk of also pushing output permanently below trend, irrespective of whether the initial shocks were temporary or not (that is, even if a harsh policy reaction was unnecessary). And that could not be easily reversed by subsequent policy easing, not least because expansions do not rebuild supply nearly as much as contractions destroy it. [22] Second, even if we were to conclude that supply shocks will lower potential durably, we would still need to examine their effects on demand before deciding our policy stance.
Consequently, the guidelines for the exercise of ownership rights must be based, not on a specifically Norwegian world view, but on internationally recognised norms. And we are open about our principles and practices without losing sight of the limits of transparency. Declarations and resolutions may have their place, but in our day-to-day work we aim for real dialogue and results. The list of global issues that require urgent attention seems never-ending, and there have been calls for the Fund to address many of these. But priorities always have to be made to avoid the risk of spreading resources too thinly. Norway has chosen its goals for the Pension  BIS Review 6/2008  1  Fund based on a long-term perspective, and we do not want to be ruled by the tyranny of the impulsive and changing priorities that beleaguer many public programmes and sectors. There is another important ethical principle behind the Fund, which should not be forgotten: namely, our obligation to future generations. For the prosperity we are enjoying now, incurs obligations. Our oil and gas reserves are limited. Justice would not be served if all our petroleum wealth was allocated only to the generation lucky enough to experience our “oil age”. We perceive it as an ethical obligation to invest our wealth also for the benefit of future generations. International capital markets play a crucial role in allowing us to fulfil this obligation. Allow me the pleasure for a moment to look back on our less illustrious history as a borrower.

The Fund and its investments in international capital markets greatly enhance our welfare and they do it in two ways: First, they give us the freedom to consume and invest oil revenues independently of the actual time profile of oil production. Second, they give us the freedom to diversify by converting oil in the ground into ownership stakes in businesses around the world, increasing expected returns and reducing risk. I hope those of us gathered here tonight – guests from far away and close by, and many who work with this Fund every day – will see a growing consensus around standards and norms for ethical investment. As a representative of Norges Bank, I am happy that you wish to be part of the process. As I’m confident our owner the Ministry of Finance, and our colleagues at the Council on Ethics would agree, we welcome input, ideas, and challenges. I wish you every success with your discussions. Thank you for your attention. 2  BIS Review 6/2008
The costs of higher capital adequacy requirements are limited and largely private, as opposed to the true economic costs. The advantages in the form of a safer banking system are considerable. A reduced risk of financial crises is good for the real economy, good for taxpayers and also good for the banks’ shareholders. The Riksbank will soon present a report that clearly shows that the benefits of higher capital adequacy requirements exceed the costs. An increased capital adequacy requirement may also need to be matched by a tighter leverage ratio requirement. The European Systemic Risk Board (ESRB) has recently submitted recommendations covering lending in foreign currency. We could see the risks of this type of lending to households at close quarters in the Baltic countries a few years ago. A few of the ESRB’s recommendations are (i) better consumer information and credit reviews of borrowers, (ii) taking exchange rate risk into consideration in the national capital adequacy requirements, and (iii) supervision of the risks in liquidity management. Swedish banks need to limit these risks better in the future. The Swedish banks’ liquidity measures need to take into account that it can be difficult to obtain certain currencies in stressed situations. Basel III’s short-term liquidity requirements also need to be met on a per-currency basis. Furthermore, we are examining whether the Riksbank’s reserve requirement can play a part in this regard. The low Swedish risk weights are a cause for concern.

The Swedish banks have had comparatively minor loan losses and provisions since 2008. But there is nothing to say that the banking sector will not be affected more severely next time. Allow me to use a rough estimate to give you an idea of how a crisis can impact the banks’ equity. In 2007–2010, 35 of the largest banks in the EU had loan losses and provisions of about SEK 350 billion. Today, these same banks have Common Equity Tier 1 of about SEK 780 billion. So if we incur similarly large loan losses in the next few years, about 45 per cent of the banks’ Common Equity Tier 1 would disappear. 4  BIS central bankers’ speeches  The important point here may not be the exact amount of the total loan losses – the estimate has been, and still is, uncertain. The important point is that, in such a situation, confidence will be a hard currency. Uncertainty over the banks’ resilience affects confidence. When confidence is undermined, the banks’ funding disappears. For the Swedish banks, this could be particularly devastating. Other countries with large banks have more stringent regulations than Basel III Earlier experiences, not least from the latest financial crisis, have also been studied by other major banking countries. Authorities in these countries wish to proceed faster and set higher requirements than the minimum standards of Basel III.
The latest Eurosystem projections published in December 2012 indicate a small euro area GDP contraction of 0.3% in 2013. Deleveraging goes on in several member states as banks continue to repair their balance sheets, limiting their lending activity and hence impeding the transmission of monetary policy in those member states. The build-up of these problems took place over a fairly long number of years, and the resolution is proving to be a gradual and hesitant process. In this light, it may be useful to start by taking stock of the general euro area situation and then make a number of related remarks on the domestic economy. Retrospective on the euro area As is well recognized, the origins of the crisis can be traced back to the excessively high public sector debt, slippage in competitiveness, inappropriate banking practices and weak bank regulatory environment on both sides of the Atlantic. The crisis has had various intertwined dimensions, each with implications for the avoidance of similar problems in the future. One observes that in several countries, fiscal problems led to sovereign debt downgrades that in turn damaged the banks’ balance sheets. The consequences of the lack of fiscal discipline were aggravated by the erosion of competitiveness and the failure to implement structural reforms. However, in several instances, banking sector difficulties were the trigger for fiscal problems. Indeed, adherence to the Stability and Growth Pact was not a sufficient condition to keep countries out of difficulties.

Alan Blinder has deftly set out 1 a spectrum of decision taking structures ranging from one individual, the Governor; through committees that are more or less collegial, with either a clear leader or a more collective approach; to committees, such as the Bank of England’s MPC, that are individualistic. Blinder and others identify advantages in a committee approach of some kind, essentially on the grounds, based on analysis or experiment, 2 that committees will generally make better decisions. That may leave out something rather important. Which is that in some countries a committee structure has been a pre-condition for achieving central bank independence in the first place. And that is a useful reminder of the political economy conditions in which monetary regimes are constituted and operate. Context matters, including possibly to some of the issues on your conference agenda. The UK’s post-war journey to monetary credibility illustrates that rather neatly. Environmental preconditions for independence: ideas and values For a long time, price stability simply was not the core objective of macroeconomic policy. A Bank of England piece in the late 1960s 3 described government’s twin goals as having been to improve trend growth and maintain high employment, to which was subsequently added balance of payments sustainability. When, in the mid-1970s, the UK suffered the indignity of having to borrow from the IMF, the Cabinet split over the Fund’s stability-oriented programme.
BIS Review 101/2009  1  The Technical Committee of the International Organisation of Securities Commissions (IOSCO), charged with regulating the securities markets, broadened its membership to include Brazil, China and India, while the BIS Committee on Payment and Settlement Systems and the Basel Committee on Banking Supervision (BCBS) extended their memberships to encompass 9 and 14 new countries respectively, the majority of which are emerging economies. Nevertheless, there is a need now to ensure that a good balance is struck between the legitimate enlargement of these bodies to reflect our economic reality and the effective and efficient mechanisms those organisations have shown so far. For example, the Basel Committee must now find ways of adapting in order to function as a 27-member body, compared with a 13-member body beforehand. I would now like to turn to the work in progress in the areas of prudential regulation, accounting standards and the scope of regulation. As far as prudential regulation is concerned, the primary imperative is to improve the quality of capital and to harmonise its definition. And this move should go hand in hand with the quick and full geographical extension of Basel II because this framework is designed precisely to ensure that requirements are proportionate to risks and indeed it would certainly have helped if it had been implemented as initially planned before 2008. Beyond that, should we add a simple measure to our arsenal that enables us to assess leverage with a view to helping anticipate the formation of asset price bubbles?

For instance, for banks, it is important to allow for the fact that  2  BIS Review 101/2009  the size of an institution is already taken into account in the prudential ratios, since capital requirements are proportionate to exposures. It is also important to bear in mind that the diversification of business lines, which goes hand in hand with a certain size of institution, may be a factor of resilience that should not be discouraged. This is an important and delicate task that has been entrusted to the FSB. 2. Developing multilateral surveillance  I will now turn to collective surveillance. Let me start with the following simple observation: the crisis did not emerge from where we were expecting. Our warning systems, both at the national and regional levels, let us down. Above all, we did not have an overall, across-theboard view of the vulnerabilities. We omitted to take into account the interactions between global economic imbalances, international financial stability and national regulation and supervision. The crisis took us by surprise because it broke out at the heart of the system, i.e. in the US financial sector. Unlike other recent financial crises and in particular the Asian crisis at the end of the 1990s, contagion spread from the industrialised countries to the rest of the world. Surveillance instruments, in particular those of the IMF, were chiefly designed to detect a balance of payments crisis, whereas this crisis first affected the financial systems. We were prepared for a foreign exchange crisis, i.e.
It is in this context that Fund surveillance could help members to be more informed of the implications of such risks, and to assist members, through Fund policy advice, on how best to prepare. In this respect, I have a view that the Fund could do more in three areas. First, it should step up its surveillance of the major economies by providing frank and independent assessments. Also, the briefings, papers, and analyses that the Fund prepares on G7 economies and meetings could be shared more widely with other Fund members. Second, in the area of financial markets surveillance, a few things could also be done. The Fund could produce and circulate monthly report on global financial markets to members focusing on the key financial flows to keep members informed of what the Fund sees as the current trends and risks in financial markets. Important in this context is the monitoring of activities or position-takings of large institutional players and hedge funds. Also, it would be useful for members if the Fund could develop its own in-house view of a benchmark risk scenario which then can be used, or shared with members, in stress-testing the vulnerabilities of economies to capital flow reversals. And third, in addition to the debt sustainability framework, the central focus of the Fund’s surveillance in emerging markets should be the analyses of capital flows and capital account sustainability.

For example, the mandate could include demands that the body must take action, or publicly explain why it refrains from taking action, when certain predetermined levels for key variables are passed. Accountability would also be facilitated by demands for far-reaching transparency and reporting, for example to the Riksdag. Macroprudential policy is only a complement I have now expressed my heartfelt support for the need to make it possible to conduct effective macroprudential policy in Sweden. However, I would like to conclude by referring back to what I said initially about having realistic expectations of what macroprudential policy can achieve. We can ask ourselves, for example, if we would have avoided the stress on the financial markets that we have seen recently if an effective macroprudential policy had been conducted in the euro area. No, we probably wouldn’t have, because the problems essentially relate to the fact that monetary policy and fiscal policy have not been appropriate given the economic development in a number of euro countries. Macroprudential policy cannot take the place of well-designed monetary and fiscal policies. But it can act as a wellneeded complement, as well-designed monetary and fiscal policies provide no guarantees against being hit by financial crises. Thank you! References Assenmacher-Wesche, Katrin and Gerlach, Stefan (2010): Credit and Bubbles, Economic Policy, July 2010, 437–482. BIS (2012): European bank funding and deleveraging, BIS Quarterly Review, March 2012. Bank of England (2011): Instruments of Macroprudential Policy: A Discussion Paper prepared by Bank of England and Financial Services Authority staff, December 2011.
The whims of French kings were replaced by parliaments that were accountable to the people. It is no coincidence that the name of the most prominent great power’s monetary unit – the pound – reflected a measure of weight: the value of a pound of silver. 10 Credibility hinged on orderly government finances and a stable political situation, which contained seignorage temptations and in turn strengthened public confidence in the value of money. A number of conditions need to be in place to enable a central bank to keep its promise! When Norges Bank was established in 1816, the government sought to ensure credibility by establishing a tax-financed silver fund. A par value against silver for the new paper money – the speciedaler – was announced. However, the market value of the speciedaler was considerably below par value – the authorities in our young country were in a difficult financial situation and had not yet established confidence. It was not until 1822 that the authorities were able to establish a more orderly system when the Storting adopted a longterm strategy whereby the silver value of the speciedaler would gradually increase to par value. 11 This goal was reached in 1842, twenty years later, bearing witness to long-termism and persistence in policy implementation. And persistence was rewarded. The rest of the 1800s and the period to the Second World War were generally characterised by price stability and strong growth in the Norwegian economy, even though there were also periods of weaker growth.

14  Øksendal, Lars Fredrik (2008), “Monetary policy under the gold standard – examining the case of Norway, 1893-1914”, Working Paper 2008/14, Norges Bank. 15  See Bjerkholt, Olav and Jan F. Qvigstad (2007): “Introduction to Ragnar Frisch’s 1933 pamphlet Saving and Circulation Regulation”, in Revisita di Storia Economica, Banca d’Italia. 16  See Eitrheim Øyvind., Jan T. Klovland and Jan F. Qvigstad (Eds.) (2004), page 293: “Historical Monetary Statistics for Norway 1819-2003”, Occasional Papers No. 35, Norges Bank, Oslo. 17  However, they were more flexible in September 1931. It only took seven days for Norway to follow the UK’s lead in abandoning the gold standard. 18  There was a consensus on parity policy in the 1920s. See for example Hodne, Fritz and Ola Honningdal Grytten (2002), pages 111-112: Norsk økonomi i det 19. århundre (The Norwegian economy in the 19th century), Fagbokforlaget and Skånland, Hermod (1967) “Det norske kredittmarked siden 1900 (The Norwegian credit market since 1900) Samfunnsøkonomiske studier No. 19, Statistics Norway, Oslo. See also Mykland, Knut (ed.) Cappelens Norgeshistorie, Vol. 13 page 86. 19  For further discussion of parity policy and Norges Bank’s role, see Ecklund, Gunhild J. (2008), pages 46-51 and 67-71: “Creating a new role for an old Central Bank: The Bank of Norway 1945-1954”, Series of Dissertations 2/2008, BI Norwegian School of Management, Oslo. 20  This link to gold was not as strong as when the obligation to redeem in gold applied.