samchain/econo-pairs-v1 huggingface dataset:
Everyone who produces inflation forecasts knows that it is difficult to exactly assess monthly changes and there is nothing remarkable about a forecast deviation of 0.2 percentage points. A factor that contributed to the forecast error was that Statistics Sweden, when it published the new figures, also downwardly revised the inflation figures for the period January to the end of July this year. It is of course unfortunate that miscalculations are made in a variable that is of such central importance to the Riksbank and many others, but it should be pointed out that this is very rare. The revision attracted a lot of media attention and there was speculation that the Riksbank would have decided differently if this miscalculation had been known at the time the decision was made. The July figure for the CPI was then 4.4 per cent, while the revised figure is 4.1 per cent. Allow me therefore to comment briefly on this. It need hardly be said that my decision, and that of the two colleagues who also entered a reservation, to recommend an unchanged interest rate would not have been effected. Whether it would have affected the decision of the majority I cannot of course say. But it should be remembered that it is the processing and analysis of a great quantity of information that leads to the overall assessment of economic development and inflation prospects. And it is the forecast derived from this information that largely determines the interest rate decision.

This is very positive and will alleviate the shortage on this market that has arisen in the wake of the global financial turmoil. The Riksbank's assessment is that the unrest on the financial markets is not affecting financial stability in Sweden. We can note that the Swedish banks have made very good profits in recent years and are financially robust. However, if the banks were to experience liquidity problems that could threaten financial stability we are ready to take measures to provide liquidity assistance. It will take time for the uncertainty on the financial markets to abate and for the situation to stabilise in a lasting way. We have already seen how the financial unrest has left its mark on the development of the real economy, and uncertainty about how it will affect growth prospects in the period ahead remains. At the end of October, the Executive Board will once more make an overall assessment of the growth and inflation prospects. Exaggerated focus on the current interest rate decision I would like to conclude with a final reflection. It is natural and important that monetary policy is debated. Sometimes, however, it feels as though a little too much focus is placed on the current interest rate decision. To say that a lot has been written about the latest interest rate increase would be somewhat of an understatement. The discussion conducted in certain quarters almost gives the impression that this increase will throw Sweden into a bottomless pit of recession.
Our CMU was linked up with Euroclear and Clearstream in 1994, with the Central Securities Depositories in Australia in 1997, New Zealand in 1998 and Korea in 1999. We also have a standing offer in the region to link up our Hong Kong dollar RTGS payment system with other currencies with RTGS capability so as to achieve payment versus payment in foreign exchange transactions, in other words, to eliminate Herstatt risk. But I must confess that, for the former, there  BIS Review 94/2001  3  has not been a lot of traffic, and for the latter, there have been no takers, so far. I hope this is merely a reflection of the fact that the financial infrastructures of others are not yet ready for these types of linkages. But I really cannot see a more robust arrangement than what we have proposed for promoting and facilitating the international financial intermediation that is found so lacking in the region. But we shall be patient. The other front that we have been working on is the replication of our Hong Kong dollar financial infrastructure for the US dollar, the popular currency for international financial intermediation. We have late last year completed this for the debt clearing system and the RTGS payment system. We have linked these to the corresponding systems in the Hong Kong dollar financial infrastructure. I won’t bore you with the technical details.

Between the low risk-return bank deposits and the high risk-return equity market, there should be a risk-return profile that fits that of debt instruments. The trick is how this latent demand, involuntarily trapped at the two ends of the spectrum, can be brought out and satisfied. Investor education and the creation of a retail network to market debt will help. But the costs of the latter can be quite substantial and possibly prohibitive, particularly in a low interest environment, if the retail banking system cannot be relied upon to support this wholeheartedly (which I am glad to add is not the case in Hong Kong). Furthermore, when government debt is used by the banking system as assets for acquiring liquidity support, the demand from the banks may easily crowd out the retail demand. Nevertheless, the institutionalisation of savings, if this could be organised, through for example the introduction of professionally managed provident fund schemes, should be quite effective in harnessing this demand. This would, at the same time, enable the retail demand to be transformed into a level of sophistication that, with the appropriate supply response, will greatly enhance the efficiency and robustness of the debt market as a channel of financial intermediation. The seventh point I wish to make concerns the supply side. For an economy with a continuing need to finance budget deficits there is of course a natural supply of debt instruments, unless, like Hong Kong, it has surpluses to spend. But the story does not end there.
Financing debt through the common budget would naturally lead to the creation of active mutualised insurance, helping to reduce the financing costs currently faced by individual Member States and to break the sovereign-bank doom loop in each country. This in turn would enhance monetary policy effectiveness, by making it easier to execute the Eurosystem's asset purchase programmes. 31  Further, if we are to increase the euro area's responsiveness to future shocks, the banking union must be completed through the creation of a common deposit insurance scheme. The lack of progress in this area and the incomplete harmonisation of national regulation go a long way to explaining the limited cross-border activity of European credit institutions and the low number of mergers between institutions of different member countries. Lastly, insufficient headway has been made in capital market integration in terms of harmonising market regulation and oversight, and insolvency proceedings. The degree of risk-sharing in these euro area markets is far less than that in other monetary unions, such as the United States. A single capital market would enable firms in the euro area to diversify and expand their sources of financing. In this respect, the progress in the capital markets union project in recent years can only be described as insufficient. That should spur the European political authorities to take more ambitious steps in this area without undue delay.

On the ECB Governing Council, then, we have reiterated our readiness to do everything within our power to help the euro area economy overcome the current deep-seated difficulties. This commitment includes, in particular, the possibility of increasing the volume of asset purchases or their duration and of adjusting their composition. The overriding aim is to eliminate any obstacle that may hamper the effective transmission of monetary policy and to prevent euro area fragmentation risks. 26  The role of the financial system in overcoming the crisis In parallel with the multi-faceted economic policy strategy to tackle the crisis, financial institutions should also contribute to mitigating the adverse effects on the various agents in the economy. The aim here is that banks should be in a position to provide financing to agents which, before the pandemic, had a favourable payment record, but which, after it, face sudden liquidity needs. As I stated earlier, banks now have higher solvency levels than in the previous crisis, which should help them play a leading and active role in this setting. So that the financial system may contribute to overcoming the crisis, national and international authorities with prudential powers - which include the Banco de España, the ECB, the European Banking Authority and the Basel Banking Supervision Committee - have adopted certain decisions aimed at preventing a mechanistic interpretation of the prevailing rules with which banks must comply from leading to fewer loans being granted by them just when this is all the more necessary. These decisions affect two differentiated areas.
All three suffered a severe set-back at the time of the global financial crisis: peak-to-trough, GDP fell by 6%, employment by 2%  2  “The welfare of a nation can scarcely be inferred from a measurement of national income” (Kuznets (1934)). 3  Bank of England (2012). BIS central bankers’ speeches  3  and wealth by 11%. These are significant falls. They are confirmation, if it were needed, that the UK entered a deep recession – indeed, a “Great Recession” – between 2008 and 2009. 4 Since 2009, however, all three measures have begun to recover: GDP has risen by around 14%, employment by around 8.5% and wealth by around 35%. These are strong recoveries. Indeed, all three measures now exceed their pre-crisis peaks: GDP is 7% higher, employment 6% higher and wealth over 30% higher than in 2008. When economists refer to the UK’s “recovery”, these are the metrics they typically use to keep score: incomes, jobs and wealth have all “recovered” their crisis-related losses. So why has that recovery not been felt, at least by some? One explanation may simply be that this time’s recovery is slower than those in the past. At a corresponding stage of recovery after the UK recessions of the 1970s, 1980s and 1990s, GDP was 6%, 19% and 18% higher respectively than today (Chart 2). Even after the Great Depression of the 1930s, GDP was 16% higher.

Such efforts, among others need to involve three basic aspects. This includes having the mechanism and vehicle to preserve short-term liquidity, to remove troubled assets from the balance sheets of financial institutions and to recapitalise Islamic financial institutions. In the case of Malaysia , this infrastructure has been put in place. The Central Bank has a range of Islamic financial instruments to manage liquidity in the financial system. This is supported by a well developed Islamic money market. In addition, the financial safety net framework in Malaysia encompasses the lender of last resort facility and a comprehensive deposit insurance system that provides coverage for both conventional and Islamic deposits. 4  BIS Review 145/2008  The Deposit Insurance Corporation has also been given sufficient statutory powers to ensure a prompt, effective and least cost resolution to safeguard the stability of the Islamic financial system. This entails among others, the regulatory powers and mandate to ensure expedient resolution of financial institutions in distress. Our supervisory oversight also subjects the Islamic financial institutions to periodical stress testing to assess whether the institutions would be able to cope in extreme conditions. Global ramifications of the crisis also calls for more concerted efforts at the international level to avert an escalation of the scale of a crisis. Central to this is to have coordinated initiatives, by having in place on-going assessments of any vulnerabilities in the Islamic financial system so as to avoid crisis.
BIS central bankers’ speeches  inflows into U.S. Treasuries in order to keep the renminbi from appreciating too rapidly. The U.S. terms of trade improved as the cost of imported goods dropped, and U.S. interest rates stayed relatively low as China recycled its trade surpluses back into U.S. financial assets. For China, the benefits included strong economic growth, technology transfer and the creation of many manufacturing jobs. These developments, in turn, helped foster rising living standards and political stability in China. These outcomes were by no means all the result of a deliberate grand strategy. But I think this is a reasonable, albeit overly simplistic, description of what happened. Although the pre-crisis arrangements worked reasonably well for a while, the flaws became increasingly evident over time. Looked at from the lens of the developed world, the combination of rapid gains in production capacity and relatively repressed consumption in the EME world helped foster a global deficiency of demand relative to supply. In these circumstances, the United States and many other industrialized economies had to sustain domestic demand at elevated levels in order to achieve “full employment” and prevent deflation. For the United States, the consequence was elevated consumption facilitated by asset price inflation, easy underwriting standards for credit and structural budget deficits. Of course, this particular outcome was not preordained or caused by the EMEs. There were multiple combinations of domestic demand consistent with full employment in the United States during the pre-crisis period.

For example, if the United States had adopted different policies, it might have shifted the composition of growth toward more business investment and less consumption and housing. But in a disinflationary global environment amid chronic EME trade surpluses, the United States could not achieve a high level of employment with a high level of national saving. Looked at from the lens of the emerging world, sustained consumption demand in developed nations induced the EMEs to continue to emphasize investment and exports. This meant that still poor populations did not reap the full benefit of their labors in the form of increases in real income and consumption commensurate with the gains achieved in productivity and output. Also, this system led, in many cases, to poor returns to EME savers. This resulted, in part, from the cost of sterilizing reserves accumulated in the process of managing exchange rates and the use of the banking system as a tool of industrial policy. While it is tempting to draw a line of causation from actions in one part of the global system to the other, this is overly simplistic. Rather, we have to think of the global economy as a single system, with outcomes based simultaneously on all the choices and preferences throughout the system. What is new is that the so-called periphery is now weighty enough to have a large impact on the pattern of economic activity in the core, as well as vice versa.
•  We read of traders in banks circumventing internal rules to make outsized market bets that subsequently resulted in large losses for these banks. •  And in financial centres across the world, including Singapore, regulators have uncovered attempts by traders at several major global banks to manipulate key financial benchmarks used to set rates for loans and foreign exchange contracts. Little wonder that global surveys show that levels of trust in the financial industry are lower than ever. •  According to Edelman, a public relations firm, banking and financial services ranked last among 15 industries that the public trusted “to do what is right”. 1  •  In countries most affected by the financial crisis and its aftermath, levels of trust are lower still – barely 30% of the public in Europe trust their banks. 1  Edelman Trust Barometer, 2013 and 2014. BIS central bankers’ speeches  1  Why trust is critical to finance Financial products and transactions can be quite complex and information asymmetries often place financial institutions in a more advantageous position compared to their customers. •  Trust that the bank is sound is critical for savers to keep their monies in bank accounts and for borrowers to make long term investment decisions. •  Trust that financial advisers and insurance agents are dealing fairly is important for consumers committing large portions of their savings for a long period of time.

My idea, which I have already mentioned, is basically this: Each economic policy framework is designed to function well in a given economic reality. When the reality changes, the framework may also need to be adapted, reformed or supplemented. However, it is also important to be able to identify the changes and understand their implications. The frameworks should aim to be robust for events that cannot be predicted. They should also be symmetrical – be able to handle shocks that lead to both higher and lower outcomes than expected. For example, the current system was created to deal with a high government debt, high inflation and high nominal wage increases. An updated framework should have scope for dealing with risks on both the upside and the downside. The frameworks that we have built up are worth defending, but we must not be too complacent and believe that there is no potential for improvement. We know that the world is different today than it was thirty years ago and that we have built up vulnerabilities in the Swedish economy. Difficult task but better conditions The Riksbank, like many other central banks, faces a challenge that we have not met for decades; inflation has risen to levels that we have not seen since the early 1990s. As I have mentioned, this was initially about a number of global supply shocks that pushed up commodity prices, in particular. But, it has gradually become increasingly clear that the price increases have begun to spread widely in the economy.
A key part of this test will be to examine the resilience of banks to a housing market shock and a snap back in interest rates. Let me therefore finish by drawing seven important messages for the future from this example of UK housing conditions and how the new system of financial regulation will operate: •  first, an effective macro-economic framework needs the credibility to influence people’s expectations of future conditions and how our policy actions will influence them. Our actions, and therefore the expectations of them, have to be credible and therefore consistent over time. The FPC has taken steps to lay out the future actions it would take if it judged the momentum of the housing market to be too strong;  •  second, in doing this “laying-out” of future actions, we are signalling that we will act to prevent the pro-cyclical tendencies of the past – whereby lending and underwriting standards weakened in the good times and then suffered a knee-jerk reaction back when conditions deteriorated;  •  third, the FPC and PRA are going to be very explicit in their use of forward-looking judgemental tools of prudential supervision, of which stress tests are a prime example;  •  fourth, our policy-making tools in the Bank of England will be joined up, consistent with our single-mission directed at the public good. A clear example of this is that our three statutory bodies, the MPC, FPC and PRA Board will work together closely.

Might this be a reflection of the rather larger share of high labour input service industries in the UK and a lower share of manufacturing? Not really, because the pattern appears to hold at a sectoral level as well. This evidence points to the importance of raising productivity growth, supported by investment, in order to make it easier to handle the debt legacy of Covid and offer some protection against the risk that the decline in the labour supply during the pandemic proves more persistent. There is an interesting issue of whether such a change is already under way as part of the immediate response to Covid. Online retailing is an example of a sector where the impact has 4/5  BIS central bankers' speeches  included higher productivity and investment to support the more digital service. Over the pandemic period, investment in intellectual property products (which includes things like investment in software and research and development) has held up better than other types of investment, particularly compared with investment in commercial buildings and transport equipment. This supports the idea that a move to digital is underway. It is too soon to tell to what extent changes seen over the last year or so will persist and further expand. But I think it is fair to say that more investment to support growth will be needed and that is why the Bank, Treasury and FCA have emphasised working with the financial sector to ensure the supply of productive finance to support investment is available.
Over the years there has been clear evidence of this in connection with excessively high expectations in the stock market or the property market, for example. In the end, it becomes difficult to justify prices in terms of economic fundamentals. Elements of this have been apparent in recent years, for instance in the United States. One issue is whether central banks ought to consider asset prices when setting the interest rate. The notion here is that asset prices may influence the path of inflation. An increase in household wealth on account of rising share prices, for example, is likely to affect consumption and thereby demand in general and the price trend. Effects from expectations are also involved. Rising share prices may mirror expectations of permanently higher corporate profits and lead to expectations of higher lifetime incomes. If confidence in the future becomes much stronger in this way, the effects on demand may be considerable. Share price increases may perhaps affect the corporate investment propensity in a similar way. The Riksbank takes this into account as far as possible in the inflation assessment. But much remains to be done, theoretically as well as empirically, when it comes to understanding the nature of these relationships. A lively discussion is in progress, at the Riksbank as well as among those who scrutinise us, about what a given development of asset prices should imply for monetary policy. There is even less agreement as to whether central banks should conduct policy so that the development of asset prices is affected directly.

This puts the responsibility for assessing and responding to risk in the most appropriate place, namely in a bank’s own management and directors. They are in the best position to know their customers and their risks, and it is therefore most appropriate - and critically important - that they understand their responsibility for administering the bank’s assets and its activities in a responsible manner The second pillar highlights the important role that supervisors play in ensuring that each individual bank is holding adequate capital. Under the New Accord, supervisors will be responsible for evaluating  2  BIS Review 52/2003  the internal processes banks use to determine their need for capital to ensure that managers are exercising an appropriate degree of judgement. The responsibility of a supervisor is to ensure that the banking system operates in a safe and sound manner and that individual banks are run by capable and competent leaders. But supervisors are not the managers of the banks. The decision on how each bank should best respond to different risks: that job should always rest with senior managers and a bank’s board of directors. Instead, by engaging managers in a dialogue about the risks they face and the controls they have adopted to address them under the second pillar, supervisors create incentives for managers to behave prudently and find ways to improve their performance. The third pillar seeks to leverage the ability of markets to provide discipline to banks to ensure that they are not holding unrealistically low levels of capital.