samchain/econo-pairs-v1 huggingface dataset:
SPEECH DATE:  23 May 2023  SPEAKER:  Governor Erik Thedéen  VENUE:  Swedish Economic Association, Stockholm  SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 registratorn@riksbank.se www.riksbank.se  The links between monetary policy, financial stability and fiscal policy1 I shall begin by thanking you for the invitation to come here. I have been looking forward to speaking to the Swedish Economic Association, as it is an opportunity for me to discuss a subject in more depth. Today, however, I intend to mix some current topics – high inflation and risks in the financial system – with a more fundamental discussion of the links between monetary policy, financial stability and fiscal policy. Finally, I will also say something about how I view the monetary policy tools. My main messages For some time now, inflation has been far too high both in Sweden and abroad. It is important that inflation quickly falls back to the 2 per cent target. We need low and stable inflation to secure confidence in the inflation target and good economic development. Our most recent assessment is that inflation will be close to the target next year, but it is of course difficult to be sure, and new information about developments will – as always – be decisive for monetary policy going forward. There has been turmoil on the financial markets during the spring.

The MPR is likely to be held at its technical minimum over the next 24 months; FCIC funds are provided over a 4-year horizon, and even short-term liquidity facilities will remain in place until early 2021. 16. Still, some challenges remain on three fronts: a. Lending to large corporations. For a number of years, big corporations have been tapping international and domestic corporate bond markets. They faced the Covid-19 crisis with rather sizeable cash holdings from bond issuing in the first quarter and the drawdown of bank credit lines. Yet this liquidity will not last forever. Reactivating the corporate bond market is key to prevent largescale corporations from crowding out SMEs from access to bank lending. The government and the CMF have adjusted regulations to speed up bond issuing and the Central Bank asset purchase program is likely to trickle down to corporate bonds, but more government action may be needed in order to reduce risk over these assets. b. Expanding non-conventional tools. Right now, the Central Bank has limited reach in the asset market, since the Constitution forbids it from buying Treasury bonds even in the secondary market as well as nonfinancial corporate bonds. A Constitutional reform is making good progress in Congress to remove the first constraint. c. Recovering private consumption and investment. Consumer and firms’ expectations have plummeted in the last eight months, responding to the social crisis, first, and to the risk-off mood of the Covid-19 pandemic, later. Private consumption and Investment are expected to drop 6% and 12% this year.
4 Negative interest rates As I mentioned earlier, it has long been assumed that interest rates had to be positive. That barrier has now been broken by a number of central banks. They now operate a policy of negative rates with a view to bringing short-term market rates below zero. Two approaches are being used to achieve this. Chart: Sveriges Riksbank interest rates Sweden has chosen the first approach. The policy rate itself is a negative 0.35 percent. This is combined with normal liquidity management without excess reserves in the banking system. As a result, the shortest money market rates are also negative. 5 The central banks in the euro area, Switzerland and Denmark have chosen a different approach. Policy rates are zero or marginally positive, while the reserve rate is negative. At the same time, there are substantial excess reserves in the banking system. The reserve rate is a negative 0.75 percent in Switzerland and Denmark and a negative 0.2 percent in the euro area. 6 Maintaining large excess reserves is a deliberate policy. These central banks have supplied liquidity to the market and intentionally used the excess reserves to push down the overnight interbank rate towards the reserve rate. The central banks of Denmark and Switzerland have achieved this by purchasing foreign currency to counteract an appreciation of the exchange rate. By also permitting short-term money market rates to become negative, they have made the domestic currency less attractive.

First and foremost, international linkages have risen dramatically over the past few decades, increasing the importance of cross border spillovers.6 Growing cross border trade means external demand has greater effects on domestic resource allocation and therefore inflation. The integration of low-cost producers into the global economy has imparted a steady disinflationary bias through its direct effect on prices. The expansion in global value chains has increased the synchronisation of producer prices across countries. Financial linkages have increased leading to a faster and more powerful transmission of shocks across countries. And globalisation has increased the contestability of markets, weakening the extent to which slack in domestic labour markets influences domestic inflationary pressures.7 Second, the changing nature of trade invoicing is affecting import price pass through and changing the inflation-output volatility trade-off facing monetary policy makers. Dominant currency pricing is widespread (partly due to the growth of supply chains), leading to deviations from the law of one price and misalignments in countries’ terms of trade.8 The dollar represents the currency of choice for at least half of international trade invoices, around five times greater than the US’s share in world goods imports, and three times its share in world exports.9 The resulting stickiness of import prices in dollar terms means exchange rate pass-through for changes in the dollar is high regardless of the country of export and import, while pass-through of non-dominant currencies is negligible.
Last year, we announced some changes to that calculation, the most significant of which is that, starting in March, we will switch to calculating it as a volume-weighted median using data drawn from the FR 2420 data collection, rather than a volume-weighed mean using data provided by federal funds brokers. The change in the data source was made to make the calculation process more robust.28 We changed the calculation methodology because, while the mean and median are usually very close to one another, when they differ the median is a better reflection of money market activity, and because using a median enhances the reliability and integrity of the rate.29 The New York Fed published a technical note this past July that describes in detail the benefits of this change.30  BIS central bankers’ speeches  5  Our recent experience has confirmed the expectation that the transition to the median in March will result in little overall impact on the level of the effective rate over time. Figure 3 shows a time series of the mean and median rates computed from the FR 2420 data. As you can see, they remain quite close to one another. The FR 2420 data also allow us to examine closely the distribution of traded rates in the overnight Eurodollar deposit market.

However, I would like to briefly address an aspect of macroeconomic and institutional framework, which has been an important determinant of the extent and magnitude of the national authorities’ response to the crises: the exchange rate regime. A quick glance at the current developments in the region and broader allows us to draw the conclusion that the countries adopting a fixed exchange rate regime have been affected by the global crisis proportionally higher. Moreover, they have been more constrained in terms of responding to the crisis. By contrast, countries adopting a free floating exchange rate regime have been affected by the crisis more mildly and smoothly, and they have preserved higher independence in their economic policies for the mitigation of crisis effects. Obviously, this is not occasional: the free floating exchange rate regime is an important political, economic and institutional investment of emerging countries. Their sacrifices in terms of building reliable monetary and fiscal policies, enhancing public confidence in the respective currencies and national financial institutions are rewarded with the flexibility this regime provides to macroeconomic policies in coping with the crises. Exchange rate volatility mechanism is precisely a mechanism that allows the economy to absorb various shocks. The free floating exchange rate regime, devotedly adopted by the Bank of Albania, allows the Albanian economy to withstand these shocks at minimum cost. Let us leave this mechanism operate smoothly, without excessive reactions from the market or its agents. Any smooth moves towards the exchange rate equilibrium will be in the Albanian economy’s own interest.
7 If lenders had maintained minimum downpayment percentages and maximum debt-to-income ratios as the  4  These charts were created by Joseph Gyourko, Wharton Real Estate Group. 5  See Gary Gorton. 2008. “The Panic of 2007”. Prepared for the Federal Reserve Bank of Kansas City, Jackson Hole Conference, August. 6  Carmen Reinhart and Kenneth Rogoff. 2009. This Time is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press. 7  For speculators, the downpayment constraint is likely to be the more relevant since they do not intend to hold the mortgage for very long. 4  BIS Review 92/2010  housing boom began, then rising prices would have done a better job of rationing demand, thereby limiting the duration of the bubble and the extent of overvaluation in the markets. However, as Reinhart and Rogoff demonstrate repeatedly, “this time is different” so house prices were expected to continue to increase, which “justified” lenders’ decisions to lower the downpayment percentages and raise the allowable debt-to-income ratios. In 2001, at least half of new subprime mortgages had downpayments of 20 percent or less, and at least a quarter had downpayments of 11 percent or less. By 2006, at least half of new subprime mortgages had downpayments of 10 percent or less, and at least a quarter had no downpayment at all.

Constantinos Herodotou: Recent developments in housing markets and related policy challenges Speech by Mr Constantinos Herodotou, Governor of the Central Bank of Cyprus, at the HL conference organised by the NBB, Nicosia, 18 February 2022. *** The target of macroprudential policy is to mitigate threats to financial stability, by reducing vulnerabilities and promoting the resilience of the financial system. In order to achieve its goal, the macroprudential toolbox has been designed to include two broad categories of measures. First category, authorities can use Borrowed Based Measures, such as limits on the Loan-to-Value ratio, which strengthen the resilience of borrowers against potential vulnerabilities and limit demand for credit. The second category are the Capital Based Measures, such as higher risk-weights on specific exposures, which strengthen the resilience of credit institutions, by increasing available buffers that can be released in case of adverse developments1. One of the macroprudential risks authorities face stems from the overheating of the residential market. The fact that not all euro area countries receive relevant warnings and recommendations by the ESRB is an indication that the Residential Market in the euro area is characterised by heterogeneity. In the upper right quartile of the chart, we find a number of countries that registered an accumulated increase in residential property prices of at least 25% in the last three years. Other countries have recorded accumulated growth as low as 5%.
More than that, developments during the year have helped in several ways to strengthen the prospect of our being able to sustain this improved economic performance going forward. A year ago, output was growing at over 3%, which is arguably faster than we can hope to sustain for any length of time without running risks of generating inflationary pressures. We needed therefore to see some degree of moderation in the pace of overall demand, to ensure that the economy could continue to grow without generating strains. For preference, the moderation needed to come principally in the area of consumption spending, which had been the major factor driving growth through last year, as households enjoyed the benefits of high employment and rising incomes. Sustainable growth in household spending is, of course, highly desirable and very much the mark of a healthy and growing economy; but it needed to be balanced against the equally desirable planned increases in government spending on public services, and the higher levels planned for public investment on improved infrastructure, both made possible by the government's strong fiscal position. The need was to ensure that all these sources of demand did not over-stretch the economy's overall productive capacity. The evidence that consumption spending may indeed have moderated somewhat towards the end of the year, and in parallel that there has been a resumption of growth in business investment, represents an improvement in the balance of demand in the economy which in turn improves the prospect of our being able to sustain growth going forward.

The immediate consequence of such an increase in demand relative to output is a current account deficit and inflationary pressures. This is not a new point. It was prominent in the post-mortem examination of the UK boom and subsequent bust in the late 1980s. Nigel Lawson wrote in his memoirs “in the mid to late 1980s, there was a substantial upward revision of the permanent element [of income], particularly if we include capital gains, notably from home ownership. In part this was wholly justified, given the undoubted supply-side improvements that had occurred. But it clearly went too far”. (Lawson, N, The View from No 11, Bantam Press, 1992, p 632.) And there is the rub. Provided the increase in productivity materialises, families and firms will be able to repay the debts incurred to finance the increase in spending. The levels of spending and output will converge, and the current account deficit will steadily subside. But if optimism has run ahead of reality, then, at some point an awkward downward adjustment to spending must take place. In such circumstances, the adjustment to quantities - both spending and the trade deficit - are likely to follow sharp adjustments in asset prices - both stock markets and exchange rates - when expectations come back into line with the underlying increase in productivity. My final question was what does this mean for the economic see-saw in the UK? At present domestic demand is up and external demand is down.
By the end of the last century, Asia less Japan had doubled its share to 30 per cent of global GDP. China is already the second largest economy in the world, India the fourth largest, and you are all familiar with the various projections of when these two economies will become the largest and third largest respectively. The rest of Asia will continue to be the most buoyant region in the world, as it has been for the last 50 years. 4. The story of China and India as the new growth engines of the world has been told numerous times. I would therefore like to tell the story of the third growth engine of Asia – ASEAN. The ASEAN value proposition 5. ASEAN is a two-trillion-dollar economy, the fifth largest in the world at purchasing power parity terms, ahead of Russia, Brazil, France and the United Kingdom. The external trade volume of the ASEAN-5 economies (Indonesia, Malaysia, Thailand, Philippines, Singapore) is more than three times that of India’s total trade and about 60 percent that of China’s. ASEAN provides good diversification for investors’ Asian portfolios. Last year, foreign direct investments into the ASEAN-5 totaled nearly $ billion, roughly three times the inflows into India. 6. Let me touch on three aspects of the ASEAN story. First, ASEAN is resilient: it rode the global financial crisis very well. I will assess how ASEAN is now coping with the post-crisis risks of inflation and capital inflows. Second, ASEAN is getting more integrated.

The aim is to  BIS central bankers’ speeches  3  provide financial institutions operating in ASEAN better access to the entire ASEAN customer base, and facilitate regional expansion. 26. In addition to facilitating internal integration, ASEAN has been active in linking up with other Asian economies through its strategy of open regionalism. ASEAN has a number of Free Trade Agreements with key Asian economies, including China, Japan, India and Korea. These pan-Asian linkages enable ASEAN to serve as a springboard for investors seeking access to key markets in Asia. 27. Indeed, measured by the degree of intra-regional trade, Asia is already the second most integrated region in the world, after the European Union. And ASEAN is at the nucleus of this expanding network of trade and transport connections spanning Asia. Opportunity: investment in infrastructure 28. A resilient and integrated ASEAN offers considerable investment opportunities, especially in infrastructure. 29. The demand for infrastructure investment in the region is significant. A report released by the Asian Development Bank Institute (“ADBI”) estimates that the total investment needs for national infrastructure development in Asia, from 2010 to 2020, will total about $ trillion, or an average of $ billion per year. 30. But supply – in terms of actual public and private infrastructure investment – has not matched demand. The World Bank has estimated that private sector investment into Asian infrastructure from 1990 to 2008 totaled just $ billion or an average of $ billion per year.
Many representatives of trade unions and employers express a strong ambition and determination to arrive at wage increases that are commensurate with the macroeconomic situation. This is all to the good. But the fact remains that even in recent years, the rate of wage increases in Sweden has been higher than in major competitor countries and also above the macroeconomic potential. Real wage increases in excess of productivity growth enlarge the wage share and reduce the gross profit share. That is what is happening now in Sweden. Bit by bit, at least a part of the increased profit margin that resulted from the krona’s fall in the autumn of 1992 is being eroded. This is a difference from the United States. There the economy has entered what might be described as a good spiral, where higher productivity increases and comparatively moderate wage increases have generated profits that help to drive new investment in advanced technology. In such a process, unduly high wage increases can bring the changes to a halt, as happened in Sweden in the late-1960s and early-1970s. Present economic assessments do not generally suggest that a break is imminent in the path of Swedish wage formation. So will this have a negative impact on the propensity of firms to invest in the new technology? The financial system This brings me to the significance of the financial system and access for corporate financing in the transitional phase.

As I see it, expected corporate profits and access to reasonable investment financing are vital for a process of transformation. Wage formation Let us now take a look at a period when wage formation was one factor behind a less successful transformation of the Swedish economy. When the industrialised economies began to recover after World War Two and international competition increased, partly because trade barriers were dismantled, it became increasingly necessary for Swedish firms to adjust their product range. The requirements resembled those that now seem to lie in the not too distant future. For much of that period the level of Swedish wage costs rose rapidly. This meant that corporate profitability was under pressure both from the increased international competition and for rising wage costs. To cope with this pressure, firms tried to cut production costs by means of rationalisation rather than by investing in new products. With diminishing profits, they lacked the new investment stimulus and the rapid renewal of the capital stock that the pressure for change called for. During a period of transformation, rationalisation is not enough; new developments are equally important. At first, most things still went well. The 1960s was a fantastic decade for growth. In time, however, the strategy proved to be defensive and stagnation set in in the 1970s. There are limits to growth through rationalisation. Without renewal, growth normally slows sooner or later. Compared with other countries, the trend rate of growth in Sweden did indeed turn downwards.
Prasarn Trairatvorakul: Asian and Thai economies in a volatile world Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at The Nation’s 43rd Anniversary International Conference, Bangkok, 19 July 2013. *  *  *  Distinguished CEO and Chairman, Members of Asia News Network, Distinguished Guests; Ladies and Gentlemen, It is a delight to address you on this auspicious occasion of The Nation’s 43rd anniversary. Let me congratulate you warmly, and wish you many flourishing years ahead. We gather here at an important juncture of what seems to be yet another shift in global economic and financial landscape. The three-speed world economy appears to be on a convergence course recently as China and some other emerging markets start to show signs of slowdown, while the US and Japan are gathering momentum. These changing global dynamics coinciding with market’s enthusiastic reactions to Federal Reserve’s signal of socalled “QE tapering” led to a sell-off of emerging market debt and equities, and reversal of foreign capital flows that had rushed into the region earlier this year. Living in a more volatile world The financial world has indeed become more volatile. Many factors intertwine to render such great financial market volatility we observe today.

I would like to urge that, in searching for labor market solution, attention must also be paid to the problems of the wage structure, since at the going wage, price mechanism and its signaling function do not work efficiently enough to clear the labor market to eliminate this skill mismatch. Related issue is that of a long stall in labor productivity as well as overall productivity growth. Policy distortions and a lack of clear policy directions can discourage firms from accumulating physical capital and investing in innovation, and prevent workers from moving to higher value-added sector. For example, agricultural price subsidy measures, while serving their redistributive purposes, may inadvertently channel workers away from highly productive manufacturing to agricultural sector, thus contributing to lower overall productivity of the economy. At the same time, low public spending on R&D and insufficient protection of intellectual property rights may deter innovative entrepreneurship and hinder a transformation towards a knowledge-based economy. Good news is, the risk of a sustained growth slowdown could be reduced or even avoided, as success of some mature economies in Asia have shown in the past. This will depend crucially on the quality and the timeliness of public policies across a wide spectrum in tackling these long-term issues. To be sure the task is not going to be easy. Reorienting the country’s growth strategy to focus more on skills development, innovation, and productivity involves deliberate planning over relatively long stretch of time. Three principles are of the essence: visionary leadership, consistency, and continuity.