samchain/econo-pairs-v1 huggingface dataset:
However, the Riksbank’s assessment is that the weakening of the krona is temporary and primarily a result of the financial crisis. In times of financial turbulence investors tend to turn to the larger currencies, which are regarded as "safer”. The result of this flight to quality is that smaller currencies like the Swedish krona weaken. The Norwegian krona has also depreciated substantially. But there is a risk that this weakening will be more prolonged. This would normally lead to exports strengthening and imports slowing down, and at the same time provide an inflationary impulse. During a normal economic downturn it may be an advantage that the currency depreciates in this way and thus dampens the downturn. In the current circumstances, with a serious global financial crisis that may result in financing problems for entire countries, the situation may become more problematic. Several countries in Europe, in addition to Iceland, have seen their currencies depreciate substantially. In December the forecast was that GDP will decline by 0.5 per cent during 2009, but that growth will recover in 2010. The information received since then indicates that GDP growth in the fourth quarter of last year was weaker than we had been expecting, which will also push down the average for the year 2009. Industrial production, production of services and the activity index all fell in November. The National Institute of Economic Research’s Economic  8  BIS Review 7/2009  Tendency Survey and the purchasing managers’ index continued to fall in December, reaching all-time lows.

Secondly, the major problem so far has been the financing of the banks’ operations, while the problem last time was credit losses linked to falling property prices. The positive element here is that the current problems are not due to poor profitability or large credit losses. The negative element is that even a country with a profitable bank system with large buffers can experience problems. Iceland is one example of how a small country with an open economy and its own currency can be affected by a financial crisis. I pointed out on several occasions at the monetary policy meetings held last year that there is a considerable risk that the crisis will be both more profound and more prolonged than we assume in our forecasts. I would like to take this opportunity to develop my reasons. Kenneth Rogoff is another of the advisers to the Executive Board of the Riksbank. Together with Carmen Reinhart he has made a number of studies of financial crises. They consider the Swedish bank crisis of the 1990s to be one of the most serious financial crises, “the big five”.3 One of their studies shows that the financial crises that have occurred in industrial nations in recent decades have been followed by long periods of weak growth.4 Seen as an average of the 18 crises reported, this concerns a period of three years of low growth and for the "big five" an average of three years of negative growth.
That hardly characterises the UK in the past five years, where inflation has averaged well above our 2% target and the real interest rate has as a consequence been pretty low. Moreover, it is by no means obvious that the UK’s economic problem is simply one of deficient aggregate demand. The limited disinflationary pressures coupled with consistently weak productivity growth suggest that the financial crisis may have wrought significant damage to the supply side of the economy. Our November Inflation Report discussed a variety of possible explanations for the weakness in productivity, relative to a continuation of its pre-crisis trend. Some of the weakness may unwind naturally as the recovery gathers pace, some may require policy intervention to fix, and some may persist indefinitely. But it seems unwise to assume that all of it will unwind with a recovery. That part of it which is attributable to a supply-side deterioration will instead be absorbed as a higher price level under a nominal income target. Of course, this issue could be addressed by adjusting the target level of nominal income down for the presumed deterioration in supply, but unfortunately we do not presently have a good handle on just how big this is.

The development of this market in Hong Kong is a story very familiar to you, so let me focus my remarks on three specific questions which I am often asked. First, is the RMB liquidity pool in Hong Kong big enough? Over the past year or so, the growth of RMB customer deposits has turned modest. On occasions there have even been month-on-month declines. Some commentators have seen this as a sign that the RMB liquidity pool in Hong Kong is beginning to plateau and might not be able to support future RMB bond issuances and other financial activities. Frankly, I think this should not be a cause for concern. One needs to recognise that the level of RMB customer deposits is a useful but incomplete measure of RMB liquidity. For instance, banks have been increasingly issuing RMB certificates of deposits as a means to tap RMB funds. Taking RMB customer deposits and certificates of deposits together, these added up  2  BIS central bankers’ speeches  to 700 billion yuan at the end of July 2012, with a modest 5% increase from the end of 2011. In other words, the RMB deposit pool has remained largely stable, at a time when we are seeing very vibrant RMB dim-sum bond issuances and expansion in other RMB financing and investment activities. This is a healthy sign that market forces are balancing supply and demand, and that the offshore RMB market in Hong Kong is maturing.
The economy is currently beginning to recover from what many are calling the Great Recession. While real GDP began to increase in the third quarter of last year, growth so far has been insufficient to improve conditions much in the labor markets. This unfortunate reality can be seen in Figure 1, which shows the employment-to-population ratio over the past 30 years with the shading representing recessions. The decline of about five percentage points in the employment-to-population ratio in this recession is striking, as many workers have either become unemployed or dropped out of the work force. While it is not uncommon for the employment-to-population ratio to decline in a recession, Figure 2 shows how dramatic the decline has been in this recession, compared with previous ones. 2 The loss of jobs has been particularly acute in construction and manufacturing. The severity of the job losses in these male-dominated industries is one of the reasons that males in some age groups have experienced such a significant decline in their employment-to-population ratio, as shown in Figure 3. For example, the March unemployment rates for males between the ages of 20 and 24 was 18.4 per cent, more than 5 percentage points higher than for females in the same age group.

While financial markets have improved significantly, real estate problems, bank closures, and significant non-performing loans on the books of many banks continue to provide financial headwinds to the recovery. And clearly – as the headlines of the past week have highlighted – financial problems abroad still have the potential to result in slower U.S. exports, and may hold potential further problems for global financial institutions. In sum, my view is that with inflation expectations stable, core PCE inflation rates declining, and significant excess capacity in the economy, accommodative monetary policy remains appropriate. Thank you. 6  See for example the remarks by Chairman Ben Bernanke at the National Commission on Fiscal Responsibility and Reform on April 27, available at http://www.federalreserve.gov/newsevents/speech/bernanke20100427a.htm. BIS Review 62/2010  5
Similar tendencies are to be found in other industrialised countries. So it is not just in Sweden that saving has moved away from traditional bank deposits. One underlying factor is probably demographic. People traditionally tend to save more in the phase of life when their children are old enough to leave home. In that the large birth cohorts from the 1940s reached that age during the 1980s, there was no doubt an increase in the propensity to save for the longer term. Moreover, people today live longer on average than before, which means that they work for a shorter proportion of their lives, so the higher return that often results from long-term saving comes in handy to maintain their standard of living. Changes in tax, transfer and pensions systems also tend to move in the same direction. The fact that rising standards of living and a better yield have boosted households’ financial wealth may also have raised the propensity to take risks. Additional factors may be decreased transaction costs, more access to information and the simpler procedures for share dealing compared with the situation twenty to thirty years ago. Many of these changes have occurred as a result of technical innovations, not least the advent of the internet. Long-term saving requires an ability to manage the associated risks. Share prices fluctuate widely, in marked contrast to the stability of bank deposits.

The results showed that in the period before the Nasdaq index fell as much as 60 per cent, less than 1 per cent of the recommendations had been to sell. The media subscribed to the exuberant mood with reports of rapidly rising share prices and the notion that quick money could be earned in the so-called new economy became the conventional wisdom. In retrospect we know that while share prices for IT and other new companies did rise rapidly for a number of years, they could also fall very quickly. Could there be a better illustration of a financial market bubble? Here I want to call for studies like those in the United States to throw more light on whether and, if so, to what extent there were also similar tendencies in Sweden. For the time being we shall have to make do with occasional observations and more anecdotal information. There is little doubt about the Swedish stock market also being feverish in the late 1990s, with many inexperienced newcomers. As far as I know, a good many companies were operating at a loss and issued shares. Neither did I detect a massive increase in sell recommendations before the IT bubble began to collapse. So a cautious 14  D’Avolio, G., Gildor, E. & Shleifer, A. (2001), Technology, information production and market efficiency, paper presented at the Federal Reserve Bank of Kansas City Symposium in Jackson Hole (August).
That is reflected in the fact that the ratio of the monetary liabilities of the banking system (broad money) to the monetary base has fallen sharply in both countries, as indeed it did in Japan a decade earlier. In its communications, the Bank of England has stressed the monetary impact of its asset purchases, but that has been on the quantity of monetary deposits in the banking system, not narrow money. Have these policies been effective? Or does Eggertsson and Woodford’s neutrality result apply? Studies of Japan’s earlier experience of quantitative easing suggested only rather modest effects. For instance, Bernanke et al. (2004) found that although the falls in government bond yields following bond purchase announcements were statistically significant, they were typically just a few basis points in magnitude. Nevertheless, over the period as a whole, the yield curve was somewhat lower than predicted by a macro-factor model of the term structure, consistent with some impact from unconventional monetary policy actions (including also the Bank of Japan’s zero interest rate policy). Oda and Ueda (2005) estimate bond risk premia using a structural macro-finance model and find that bond purchases had no significant effect in reducing those risk premia, though they do find that the zero interest rate policy reduced long-term rates by around 20–40bp.

Cecchetti, Stephen, Hans Genberg, and Sushil Wadhwani (2002). “Asset Prices in a Flexible Inflation Targeting Framework”, in William Hunter, George Kaufman and Michael Pomerleano, eds., Asset Price Bubbles: The Implications for Monetary, Regulatory and International Policies, 427–444. MIT Press: Cambridge, MA. Coenen, Günter, Athanasios Orphanides and Volker Wieland (2004). “Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero”, Advances in Macroeconomics, 4(1). Cúrdia, Vasco, and Michael Woodford (2009). “Credit Spreads and Monetary Policy”, NBER Working Paper 15289. Cúrdia, Vasco, and Michael Woodford (2010). “The Central Bank Balance Sheet as an Instrument of Monetary Policy”, paper prepared for Carnegie-Rochester Conference on Public Policy, “The Future of Central Banking,” April 16–17. Eggertsson, Gauti B., and Michael Woodford (2003). “The Zero Bound on Interest Rates and Optimal Monetary Policy”, Brookings Papers on Economic Activity, 1, 139–211. Edge, Rochelle M. (2003). “A Utility-Based Welfare Criterion in a Model with Endogenous Capital Accumulation”, Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series, No.2003-66. Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack (2010). “Large-scale Asset Purchases by the Federal Reserve: Did They Work?” Federal Reserve Bank of New York, Staff Report No.441. Gertler, Mark, and Peter Karadi (2009). “A Model of Unconventional Monetary Policy”, mimeo, New York University. Greenspan, Alan (2002) “Opening Remarks” in Rethinking Stabilization Policy, 1–10. Federal Reserve Bank of Kansas: Kansas City. Gruen, David, Michael Plumb and Andrew Stone (2003).
In the case of Archegos, for example, individual counterparties were not sighted on the total size of the firms’ sizeable and concentrated swap positions, meaning they had imperfect information on which to manage counterparty credit risk. In fact, when margin was called as prices moved against Archegos in March 2021, the firm was forced to liquidate its concentrated positions, further amplifying adverse price movements, through the market channel I just described. The end result was that Archegos could not meet all of its margin calls, and its default left its bank-affiliated prime brokers sharing around $ billion in counterparty credit losses. Just as with LTCM in the late-1990s, the Archegos case highlights how financial strains on leveraged non-bank investors can transmit directly to the large banks at the core of the financial system. And it highlights again that if leveraged investors use several counterparties, overall leverage is hidden from each of them. Banks and CCPs may therefore need to have access to more information on the risk positions and balance sheets of their leveraged counterparties if they to understand fully concentrated and hidden exposures. A second lesson for banks’ and CCPs’ counterparty credit risk management from recent extraordinary events is that the past is not always a good guide for the future. And so they need to be creative in identifying stress scenarios that best illustrate their counterparties’ credit risk and so the conditions under which margin calls might not be met.

[12] As I will explain, that could relate to wrong way, risk, market dynamics, the behaviour of other market players, even operational details. I think further progress on both these fronts is needed if we are to be confident the counterparty channel is fully managed. Are these risks unique to non-banks? I think it’s helpful at this stage to ask whether these issues are unique, or if we’ve tackled them before in other contexts. And with that in mind, I’ll draw a very brief comparison to a market which has already been widely studied and embedded in the macroprudential toolkit: the mortgage market. Banks manage their exposures to mortgagors, through affordability testing, leverage limits and collateral. And that’s important from a financial stability perspective, given the feedback and amplification mechanisms that have been seen during stresses in the past. For example, stress test scenarios cover house prices falling and borrowers defaulting, and so can capture the potential for amplified price moves and a self-reinforcing price dynamic, as a result of forced sales by bank lenders into a falling housing market. Perhaps correlated falls in asset prices and leverage can create amplifying price dynamics in non-bank financial institutions as well as with households. In addition, in our financial stability analysis of the mortgage market, we recognise that reductions in spending by highly indebted mortgage borrowers as they keep up with debt repayments can create negative spillover effects to the rest of the economy.
However, in the dogmatic pursuit of inter-country convergence, intra-country disparities have become increasingly apparent. As nations across the globe were brought closer together, citizens within each nation were pulled further apart, separated by the rising inequality, the declining share of labour income versus capital, and the displacement of workers. The unfettered market openness by advanced economies had caused unintended consequences that have ignited the rise to populism, inward-looking tendencies and potentially protectionist policies. If left to run its course, this will be a setback to global prosperity. In ASEAN, we are no stranger to this perspective. Our own experience is highly relevant. We learnt from the Asian Financial Crisis, that pushing countries to adopt policies when readiness is suspect is a design for failure. Without the necessary preconditions of sound institutional frameworks, adequate safeguards and capacity and robust domestic financial markets, premature financial liberalisation will expose the economy to waves of destabilising short-term speculative flows. When these flows leave, a trail of destruction is left behind. We also learnt that proper sequencing and readiness of financial liberalisation is key. The criticism that ASEAN’s ‘steam engine’ may not be ‘full speed ahead’ does not capture the full picture. This view fails to consider and understand that quality, not the speed and quantum of integration, is what really matters. The focus of integration should not be on speed, but on building the collective capacity, readiness and resilience of member countries.

If the authorities succeed in developing a system for resolving failing banks, perhaps we can take one step back with regard to other detailed regulations. The work on reforms that has been engaged abroad must be followed up in Norway. A national bank resolution authority must be designated. It should be placed in a unit under the Ministry of Finance. This is not a natural role for a central bank. Among Norges Bank’s key tasks is the management of Norway’s foreign exchange reserves. This responsibility has followed the Bank since its establishment in 1816, first in the form of silver and gold reserves. Later, reserves were expanded to include bank deposits and securities in various currencies. Norges Bank was charged with managing the Government Petroleum Fund when the first capital transfers were made to the Fund in 1996. This was a natural extension of our responsibility for managing foreign exchange reserves. The aim of the Government Pension Fund Global, as it is now called, is to ensure that the income from our oil and gas resources will also accrue to future generations. The Fund is the nation’s family silver. It is no longer held in Norges Bank’s vault, as it was during the periods of the silver and gold standards. The Fund is invested in fixed-income securities, equities and real estate across the world.
The cooperation between the Riksbank, the banks and the cashin-transit companies is now made easier by the fact that two bank concerns have each built their own company – Bankernas Depå AB and Bank Service Syd AB – which represent their members. In this way, the establishment of cash depots can be speeded up and we can achieve a well-developed structure relatively soon. The Riksbank is also investigating the possibility of being able to destroy old and worn banknotes at the new depots in the future, in order to further reduce the number of cash transports. This would of course be done under our supervision. At present these banknotes are transported to the Riksbank for destruction, which gives rise to additional transports. We are also investigating whether, as a temporary solution, it would be possible to make banknotes unusable prior to transportation to the Riksbank for final destruction. I believe that the new structure will give us more economically-efficient cash management, where costs and income will more visibly fall to those who participate in the market. The banks and cash-intransit companies will find new forms for their operations and develop their own cash management in a better way than an authority can. I also believe that these measures will help us achieve a higher level of security for the provision of cash in Sweden.

It is sometimes claimed in the media that there is a link between the Riksbank’s closure of its depots and the increase in cash transport robberies. I would doubt that claim. First and foremost, it must be remembered that approximately 85 per cent of the cash transports that are attacked are on their way to ATMs, and the Riksbank has never been involved in these transports. Only a very few transports to or from our offices have been the target of robberies. Furthermore, the large increase in the number of robberies took place while the Riksbank still had a network of cash depots throughout Sweden. One possible explanation for the increase in the number of cash transport robberies, which has been suggested by the Swedish National Council for Crime Prevention (BRÅ), is that criminality may to some extent have been transferred from robbing banks and post offices to robbing cash transports. Other possible explanations, according to BRÅ, are that cash transport robberies yield much larger amounts than bank and post office robberies, while increased security in post offices and banks may have discouraged prospective robbers. I think that we should ask the question of why Sweden has so many more cash transport robberies than other countries, not just other Nordic countries, but the majority of European countries. There have occasionally been suggestions put forward in the general debate that if one tried to reduce the use of cash in society, the number of transports to ATMs could be reduced.