samchain/econo-pairs-v1 huggingface dataset:
One reason for these developments is that net price gains on securities have increased in this period. Bearing in mind that this was a favourable period for securities markets, it will be difficult to maintain the income share from price gains in periods of more normal returns in securities markets. With a slower rise in house and commercial property prices and lower lending growth, combined with a normalisation of loan losses, banks may find it more difficult to maintain the high level of profitability that we have witnessed in recent years. The new capital adequacy rules have had a strong impact on Norwegian banks and will continue to do so in the years ahead. How banks choose to utilise capital freed up as a result of the reduced minimum capital requirements, may have an impact on both competition and structure in the Norwegian banking sector. Freed-up capital may be used to finance lending growth, acquire other institutions or pay back capital to shareholders and other stakeholders. On average, Norwegian banks’ capital adequacy is solid. However, the substantial reduction in minimum capital requirements, even though there are transitional arrangements, also entails some risk that banks will reduce their capital to such an extent that the buffer needed to meet unforeseen events may become smaller than advisable. Banks’ profitability may also depend on the duration and severity of liquidity problems in international financial markets. Although Norwegian banks are probably somewhat less exposed than banks in many other countries, the impact may nonetheless be felt.

These variables also affect the exposures of different entities to various categories of risk. This is very much what we observe in practice, where even imbalances arising in some other sector often create ripple effects throughout the financial system and, where this is not robust enough, in the rest of the economy. Consistently with this view, it can be argued that financial stability is best pursued by implementing a coherent set of policies which respond to the underlying macroeconomic fundamentals. Recent episodes of financial crisis, for example, have shown that through their effects on expectations and on  1  This paper was delivered at a seminar organised by Société Universitaire Européenne de Recherches Financières (SUERF), in conjunction with the Central Bank of Malta on Thursday 27 March 2003. 2  Knight, M. 2002. “The Central Bank’s Role in Fostering Financial System Stability: A Canadian Perspective”, in Financial Risks, Stability, and Globalization; ed. O.E.G. Johnson. Washington, D.C.: International Monetary Fund. pg. 314.  asset prices more generally, unchecked variations in property prices can contribute to precipitating a crisis. Similarly, it is often forgotten that a combination of excessive public deficits with an over reliance on short-term capital flows and an overvalued currency is the perfect recipe for a turnaround in market confidence, and consequently for sudden reversals in capital flows.
In the last Inflation Report, it was the Executive Board’s assessment that the projections conditional on the market’s interest rate expectations seemed to provide a reasonable balance between the objective of bringing up inflation, while avoiding excessive growth in output and employment. The previous Inflation Report, from July 2004, stated that “the most appropriate alternative now seems to be that the interest rate should be kept unchanged for a longer period than indicated by market expectations.” After this, we saw that interest rate expectations fell. By communicating our view concerning interest rate expectations, Norges Bank seeks to influence interest rate expectations. The objective is for interest rate expectations to be consistent with economic developments where inflation is on target over time and output is stable around its potential level. Most often, however, there will be a number of ways to achieve this. We need some references that provide some indication of whether a given interest rate path is reasonable. It is natural to turn first to monetary policy theory. In the theoretical literature, the trade-off between price stability and stability in the real economy is often described as a problem of minimisation, where the central bank wants to minimise a loss function, which includes variations in output and variations in inflation. The central bank shall then choose the path for the interest rate ahead that minimises the expected discounted “losses” in all future periods. In practice, no inflation-targeting central bank uses a loss function of this kind directly.

Of course, we do not believe that increased competition alone can explain developments in the Norwegian economy in the last couple of years. There have been many driving forces behind low inflation and developments in output. Nevertheless, the developments resulting from the model analysis are fairly consistent in qualitative terms with the picture we seem to be observing for the Norwegian economy. Inflation and the interest rate are low. Real wages have risen and consumption growth is high. Mainland investment and in particular housing investment have gradually increased substantially. The number of man-hours worked has also picked up markedly, although employment growth measured by the number of persons has been more subdued. The model can thus support an assumption that increased competition in the Norwegian economy is one of several driving forces behind low inflation. The model may also provide an indication of the appropriate monetary policy response to such disturbances. However, let me again emphasise that this model is still in the development process and that in addition to this model, we are also working on other empirically-based analyses to understand relationships in the Norwegian economy. It is important to have an abundance of tools so that we can combine different models and theories in our economic analyses. Conclusion The lesson from Kydland and Prescott was that economic policy can achieve better results if the authorities can commit themselves to a pre-established set of credible policy rules.
The supervisory work needs to take the overall systemic situation into account but the macro analysis they need could well be performed elsewhere and shared with the supervisors. The next question is what kind of mandate the central bank needs for its financial stability work. This is a tricky issue. An inflation-targeted monetary policy is relatively straight-forward, but how to define “financial stability”? A seemingly precise definition, without matching tools, could lead to failures and reduced confidence in the central bank, and also for its monetary policy. On the other hand, if the definition is too general it will be impossible for Parliament and others to evaluate how the central bank manages the task. Maybe, there could be a hierarchy of targets – a broad one in the legislation and a narrower one, which may be adapted to the actual situation, which is then communicated by the central bank to the general public on a regular basis. This is similar to monetary policy practices. A related issue is the one on central bank independence. Our present independence refers to the conduct of monetary policy. Do we need an extension so that it also covers our work on financial stability? This question has not been fully analysed yet, but I think that the politicians would hesitate to transfer such powers unless central bankers can find really strong arguments.

A clear illustration of this renewal and redirection of competence at the Riksbank is that the number of employees has fallen significantly in this period from 1,100–1,200 including companies, or 750 excluding companies, to the current level of 350, while personnel costs are at approximately the same level as previously. Today, more than 70 per cent of our employees have an academic degree and we have some 50 PhDs. I am sure that the same tendencies can be seen in other central banks. The concrete effects of this in our case are that we have reduced our involvement in cash management to a minimum, subcontracted the production of statistics, rationalised our administration and so on. In other words, we simply decided to perform only those tasks that we had the potential to perform better than anyone else. Only around 5 per cent of the Riksbank's employees worked directly with monetary policy and financial stability when we began this journey (even fewer if we include all those who worked with the manufacture of cash in our companies); today, more than one third of our employees work in these policy fields. Traditional operational duties for a central bank like cash management, payment system, asset management and statistics still occupy a significant share of our workforce, but they are not dominating the organization like they used to. Managing independent and self-financed institutions, we must find ways to constantly put the pressure of efficiency on the organisation ourselves.
Such possible profit squeezes could also prompt financial institutions to take on inappropriately risky assets to earn an apparently positive  8  BIS central bankers’ speeches  return. These concerns are present to some extent at very low rates, but they are magnified at negative rates of interest, a point made by Ben Bernanke in his 2004 speech on the topic. 9 A special case in the United States concerns the 2a-7 money market mutual funds, which are more prevalent in the United States than in Europe. Money market mutual funds are institutions that offer a floating rate of interest to shareholders that is intended to maintain the value of a share in the fund equal to par, or very close to par, at all times. With negative interest rates, and in the absence of a sponsor that is willing to subsidize shareholders in the fund, such a financial institution would not be able to return a dollar invested today to a shareholder the next day. In such circumstances, the fund must disband, as it has “broken the buck.” Recent SEC reforms specify that prime institutional funds be offered only shares expressed as floating Net Asset Values in 2016, but retail and Treasury-only money funds will retain a fixed NAV share structure, and therefore will still be subject to this complication in an environment of negative nominal rates. 10 6. Signal of deflation  Another complication centers on the signaling effects I mentioned earlier.

Among the latter, ADB was the first to issue RMB bond in Hong Kong in October 2010. A number of multilateral agencies also issued RMB bonds in Hong Kong after ADB’s debut issue. With the rapid growth of China’s cross-border trade and investment flows, the offshore RMB bond market would provide a useful financing platform and facilitate the greater use of RMB in these transactions, thereby minimising the currency risk associated with the use of a third currency. Notwithstanding the encouraging developments over the past years, the capacity of the regional bond markets is still limited compared with the huge infrastructure and other financing needs of the region, resulting in heavy reliance on bank financing. Much work still needs to be done, including but not limited to expanding the issuer and investor types, gradual liberalisation of barriers to entry of non-resident investors, promoting financial infrastructure linkages, improving corporate disclosure and transparency, more standardisation in legal and governance terms, to name a few. Policymakers will have a key role to play in facilitating market developments and removing market impediments in the process. And we hope to see ADB, the region’s long-standing partner in promoting bond market development, to further its efforts and cooperation with governments in the region on this front. Thank you. 2  BIS central bankers’ speeches
Moreover, Paris offers the leading source of highly qualified financial services personnel. Consequently, many global banks have already decided to transfer the majority of their market activities to Paris. This new system will require a single rulebook implemented in a harmonised manner. And we are close to achieving it in the banking sector, but we are not quite there in the insurance sector. It is thus necessary to further strengthen the role of the European supervisory authorities, and France supports – although it remains a little too alone in doing so – the Commission’s proposed reform of the ESAs. For example, EIOPA must be allowed to create, at its own initiative, cooperation platforms to better supervise entities whose activities mainly involve cross-border transactions performed under the freedom to provide services regime. EIOPA’s role as a neutral mediator in the internal model approval process at group level must also be reinforced, without giving it direct power in the approval process, which would undermine its neutrality. 2/3  BIS central bankers' speeches  This “financial Eurosystem” will also require shared infrastructures within the Union capable of offering services beyond the confines of the euro area: examples such as T2S and TIPS, the new interbank instant payment settlement system, both multi-currency services, show us that it is possible. We must also deal with the question of private monopolies in the clearing sector. We must ensure that critical key players do not become “too big to fail”.

In the short term, effectively manage the risks of Brexit As part of their tasks, the ACPR and the Banque de France closely monitor two main types of risk associated with the prospect of Brexit: those that could threaten financial stability and those that could undermine customer protection. It is important to avoid the cliff-edge that would arise from a No Deal Brexit. The economic consequences would naturally be far more serious for the United Kingdom than for the rest of the European Union. At this stage, our analysis, like that of the ECB, which as you know jointly carried out an in-depth technical study with the Bank of England, has not identified any major risks to financial stability. In the words of Mr Draghi: “It would really take an extraordinary amount of lack of preparation to materialise the financial stability risks that might come from a hard Brexit.1 The clearing of interest rate derivatives nevertheless deserves particular attention, as the UK clearing houses have a virtual monopoly in the sector. In the event of a No Deal Brexit and without taking any specific measures, this could represent a systemic risk. Therefore, should it unfortunately be necessary, we support the solution adopted by the European Commission to temporarily recognise the equivalence of the UK legislative framework under EMIR 1 and to authorise the United Kingdom’s clearing houses to continue providing clearing services to European financial institutions until EMIR 2 comes into effect.
Therefore, the materialization of upside risks would require further tightening of the monetary policy stance, while downward surprises in food and energy prices would be perceived as an opportunity to bring inflation back to the target in a shorter period. Figure 15: Inflation Alternative Scenarios  Forecasts,  Base  Scenario  Medium Term Target  Base Scenario  Pessimistic Scenario  Optimistic Scenario  and  12  10  Percent  8  6  4  2  12  2011-I  2010-IV  2010-III  2010-II  2010-I  2009-IV  2009-III  2009-II  2009-I  2008-IV  2008-III  2008-II  2008-I  2007-IV  0  BIS Review 62/2008  A protracted period of rising food and energy prices have led to significant breaches in inflation targets since the adoption of the inflation-targeting regime and consequently increased the stickiness in inflation expectations, as economic agents have become more backward looking. Under normal conditions, supply shocks are expected to alter relative prices rather than the underlying inflation trend. Nevertheless, the fact that several longlasting shocks appeared concurrently has increased the risks to price setting behavior. As a matter of fact, recent studies by the Central Bank reveal that economic agents have been increasingly grounding their expectations on past inflation figures. In this respect, recent developments in the pricing behavior and the underlying inflation trends are of particular concern. It may be necessary to pursue a tighter monetary policy should the price setting behavior deteriorate.

Distinguished Guests, Another major risk to the inflation outlook is a sharper than expected slowdown in global economic activity, which, in turn, could lead to further volatility in financial markets. The eventual impact of financial turmoil on global economic activity triggered by mortgage loans in the US economy is yet to be seen. These uncertainties have been dampening the risk appetite and thus slowing capital flows to emerging economies. The CBT will not react to temporary fluctuations in financial markets. Yet, we will not hesitate to tighten monetary policy in case of a significant worsening in the overall pricing behavior. Under current liquidity conditions, I believe it is useful to note that the Central Bank has the resilience to implement a strong monetary tightening within a short time. The recent cuts in the amount of foreign exchange auctions, reduced FX borrowing of the Treasury and the increase in demand for money has led to a decline in the withdrawal of excess liquidity in the overnight market. The said tendency is expected to persist in the upcoming period, which will thus lead to relatively tighter monetary conditions. This framework not only allows the Central Bank to perform more resilient and efficient liquidity management but also to adopt tighter monetary policy without the need for a Monetary Policy Committee Meeting.
Other labour market indicators have also been strong, with a 200,000 increase in HMRC payroll numbers in May and an increase in job vacancies to above pre-pandemic levels. Most strikingly, private sector regular pay rose by 5.6% in the April data – though it is important to note that this is boosted by compositional effects, and by a base effect from spring last year. Aiming off for these transitory factors ‘underlying’ pay growth appears close to pre-pandemic levels. As Andrew Bailey set out in his recent speech, the compositional and base effect in the data meant that even if the level of average earnings was flat for the rest of the year, the growth rate would peak at nearly 8%. Putting all that together I expect to see another high reading in the May earnings numbers when they are published tomorrow. The latest REC survey for June reported labour demand growth at record highs, staff availability declining at a record rate, and pay growth rising fast. Against that backdrop it is not surprising that the labour market is a recurring theme of the intelligence on economic conditions that we receive from our agents and from our (virtual) regional visits. Finally there has also been significant news in inflation. UK CPI inflation rose to 2.1% in May, and then to 2.5% in this morning’s June data release. That represented material upside news to our May short-term projections, and as a result also represents a faster move to above-target inflation than we had been expecting.

Navigating the economy through the Covid crisis Speech given by Dave Ramsden, Deputy Governor for Markets & Banking  The Strand Group, King’s Business School 14 July 2021  With thanks to Tom Smith and Michael Yoganayagam for their assistance in preparing these remarks, and to numerous colleagues, including Saba Alam, Andrew Bailey, Nick Bate, Max English, Greg Kidd, Andrew Hauser, Maggie Illingworth, Sarah Illingworth, Sean Maloney, Alex Rattan, Andrea Rosen, Michael Saunders, Fergal Shortall and Silvana Tenreyro, for their many helpful contributions. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  Introduction It’s very good to be back speaking at this 51st Strand Group event and in my role as a Visiting Professor at King’s. This is the third Strand Group event I’ve spoken at but my first time speaking to you virtually. I’ve been involved in forecasting throughout my career, both in my current role as a Monetary Policy Committee (MPC) member and in my previous civil service career at HM Treasury.1 Outside of work I’m also a keen mountain walker – most recently being lucky enough to spend some time on the Isle of Skye – and it’s hard not to see parallels between the two activities. Forecasts act as a map for policymakers of where the economy is heading, showing what adjustments to the current path are needed to avoid impending hazards and ensure they safely reach their policy objectives.
Figure 2 Commodity prices (*) (index, 2009=100) 240  240  210  210  180  180  150  150  120  120  90  90  60  60  30  30  06 Edible oils  07  08 Sugar  Meats  09 Dairy  10  11  Cereals  WTI oil  (*) Except for WTI oil, FAO indexes are used. Source: Bloomberg. 6  BIS central bankers’ speeches  Figure 3 Inflation  (annual change, percent)  CPI  Core CPI (4)  10  10 6  6  8  8  6  6  5  5  4  4  4  4  2  2  3  3  0  0  2  2  -2  -2 1  1  -4  -4 0  0  05  06  07  08  U.S.A. Emerging Asia (2)  09  10  11  05  06  07  Eurozone Emerging Europe (3)  08  09  10  11  Latin America (1)  (1) CPI anc Core CPI include: Brazil, Colombia, Mexico and Peru. (2) CPI includes China, Indonesia, Malaysia, South Korea and Thailand. Core CPI includes South Korea and Thailand. (3) CPI includes Czech Rep., Hungary, Poland and Russia. Core CPI excludes Russia. (4) Uses definition of each country. Sources: Bloomberg, CEIC Data and statitics institutes of respective countries.

Japan China Latin America World  Inflación -0.6 -0.4 -0.2 -0.2 -0.8 -0.8 -0.2 -0.4  Consenso de mercado  PIB 0.6 0.2 0.7 -  Inflación -0.3 -0.3 -0.4 -  PIB 0.5 0.5 0.3 -  Inflación -0.35 -0.5 -0.3 -0.2 -0.8 -0.27 -0.4  0.5 0.4 0.3 0.7 0.46 -  (*) For comparison purposes, the shocks of the respective studies have been adjusted to equal magnitudes. Sources: Central Bank of Chile, Deutsche Bank, International Monetary Fund and OECD. 12  BIS central bankers’ speeches  Figure 12 International prices of commodity foodstuffs (1)  External price index of foodstuffs relevant to Chile (2)  monthly index, January 2007 and June 2010=100  (índice, enero 2007=100)  170  170  170  170  160  160  160  160  150  150  150  150  140  140  140  140  130  130  130  130  120  120  120  120  110  110  110  110  100  100  100  t  t+5  t+10  t+15  07  08  January 2007-June 2008  09 In pesos  10  11  100  In dollars  June 2010-February 2011  (1) Based on FAO index that uses average prices of monthly transactions in the main markets. (2) Based on weights of international prices of the various foodstuffs according to shares in CPI basket.