samchain/econo-pairs-v1 huggingface dataset:
Since the beginning of this year, lower risk premiums have accompanied a stronger krone. Developments in the GRI were also an important factor during the Russian crisis in 1998-1999. When global risk premiums and interest rates are low, investors may turn to higher-yield currencies. There is also a tendency for more peripheral currencies to attract increased attention when volatility between the major global currencies is subdued and risk premiums are low. The interest rate differential has been an important explanation for the movements in the krone exchange rate, at least since the summer of 1999. A higher interest rate differential has accompanied a stronger krone. The krone has appreciated significantly since the beginning of this year, however, and apparently somewhat more than what can be explained by the interest rate differential alone. One explanation may be that market participants react to signs of pressure in the economy by adjusting their interest rate expectations in the longer term. This has an impact on longer-term interest rates. Thus, movements in the exchange rate may be a result of changes in forward rates, as well as current interest rates. Since early January, the 12-month money market differential appears to have followed the krone exchange rate more closely than the 3-month differential. The pressure on internal resources seems to have resulted in expectations of tight monetary conditions, which contributed to the recent appreciation of the krone. The nominal appreciation of the krone has been accompanied by a significant real appreciation of Norwegian labour.

Its main objective is to manage assets and distribute wealth between generations. It also serves as a buffer against shocks: changes in petroleum revenues are absorbed by the Fund, not by the domestic economy. This reduces the need for structural adjustments and thus promotes exchange rate stability. The Fund invests only in foreign markets. Investments are spread between equities and fixed income instruments, as well as across countries. The net annual inflow to the Fund equals the net fiscal surplus plus the return on the Fund’s capital. In March 2001, a broad majority in the Norwegian parliament (the Storting) adopted a new set of guidelines for fiscal and monetary policy. According to the new guideline for fiscal policy, petroleum revenues are to be phased in approximately in pace with the expected real return on the Government Petroleum Fund. The guideline makes fiscal policy predictable and anchors it in a long-term strategy. It also makes policy robust to changes in oil prices and ensures that petroleum wealth will be of benefit both today and in the future. The guidelines imply that the structural non-oil budget deficit will equal 4 per cent of the total value of the Fund. The non-oil deficit is thus financed by the return on the Fund, ensuring both long-term fiscal balance and a continued phasing in of petroleum revenues. The use of petroleum revenues will accordingly increase as long as the Petroleum Fund is expanding. Fiscal policy will contribute to stimulating aggregate demand in the Norwegian economy every year.
The Riksbank has little opportunity to influence Sweden’s long-term growth capacity As everyone knows, one of the Riksbank’s statutory remits is to promote price stability. A large part of the Riksbank’s operations revolve around this remit. In order to be successful in this regard, it is important that the process of wage formation works well and that both the central and local governments manage their finances in a responsible manner. Relatively stable inflation in recent years and expectations of future inflation around the Riksbank’s target of 2 per cent indicate that the Bank has been successful in its conduct of monetary policy in recent years. This success has been largely attributable to increased stability in economic policy in general; in particular, fiscal policy has been governed by a ceiling for central government expenditure and a surplus target for the public finances. Furthermore, partly as a result of greater credibility for the Riksbank’s inflation target, the social partners have managed to halve the rate of wage increases from the levels that were common in the 1970s and 1980s. These circumstances have formed the environment in which the Riksbank has acted in recent years. The very point of giving the Riksbank’s objective of price stability high priority in economic policy is that a stable economic environment fosters economic growth and high employment.

The higher the  BIS Review 56/2003  1  long-term sustainable rate of growth, the easier it is for us to balance aggregate demand in the economy so that it coincides with what is available for household consumption, business investment and the needs of the public sector. So monetary policy cannot raise the potential growth rate but, in a worst case scenario, as we witnessed during the 1970s and 1980s, it can worsen our chances of attaining a high potential growth rate by affecting demand in the economy in the wrong way. Consequently, on an abstract level, the “formula” for economic growth is very simple. It is the weighted sum of labour force growth and capital growth as well as technological progress. However, when we compare growth between different countries, it is not that interesting to note that a country has high growth because its labour force is growing fast. It is the standard of living that is of interest and this does not have to improve just because the population and labour force are growing. The important issue instead is how quickly a country’s production grows per capita and this leads us into concepts such as productivity in a broad sense. For productivity is just that - production per capita. It can be measured per inhabitant, per employee or per hour worked. The concepts are closely related. One interesting observation is that the United States’ rapid growth in recent years has been attributable mainly to high labour force growth.
Because of the importance and the difficulties inherent in the balancing act, banking systems are generally subject to a higher degree of official oversight and regulation than are most other forms of private enterprise, and supported by some form of a broad safety net. While the specifics can differ appreciably across countries, these safety nets are usually constructed along similar lines. They generally include oversight of the affairs of banking institutions in the form of inspection and examination of the institutions for compliance with a broad set of safety and soundness standards; some type of protection against losses for BIS Review 17/1997  -5-  small depositors and investors; and some form of emergency liquidity facility for banking institutions and, occasionally, for other financial institutions as well. Finally, the payments system, a crucial link in any financial system, generally includes some form of official regulation of or participation in its operations. These important aspects of the safety net often feed into one or more of the functions performed by central banks. For this reason, the central bank usually plays a major role in the operation of one or more of these facets of the safety net. For example, the emergency liquidity facility is almost always the discount window of the central bank. In many countries -including Ireland and the United States -- the central bank also plays an important role in the supervision of banking institutions and in the oversight of payments system operations.

Luis M Linde: Presentation of the Bank of Spain’s Annual Report for 2014 Testimony by Mr Luis M Linde, Governor of the Bank of Spain, before the Parliamentary Committee on Economic Affairs and Competitiveness, Madrid, 24 June 2015. *  *  *  Ladies and gentlemen, I appear before this Committee on the occasion of the presentation of the Banco de España Annual Report for 2014. Let me begin by reviewing developments in the Spanish economy, the factors underpinning its recovery and the economic policy challenges of strengthening recovery. I shall then address aspects relating to the start-up of the Banking Union and the situation of, and outlook for, the Spanish banking system. Economic situation and outlook In mid-2013, the Spanish economy initiated a recovery phase that firmed last year and has continued to do so in 2015 to date. In 2014, GDP grew at a rate of 1.4% while employment did so at 1.2%, the first positive figure since the start of the crisis. In its Quarterly Report to be published tomorrow, the Banco de España will present a new set of macroeconomic projections. According to these, the Spanish economy will grow at a rate of 3.1% on average in 2015, an upward revision of 0.3 pp on the projections published in March. On the basis of this change, activity is performing better than projected three months back.
In either case, the argument goes, the global financial crisis should lead central banks to reevaluate their role in this new era. There is no doubt that we have the responsibility to carefully assess the recent events. We need to do it in order to improve our understanding of the economy and in order to improve our macroeconomic policy design, so as to avoid crises, but also handle them appropriately. In my view, many of the lessons will not be new, but they draw from lessons from previous experiences, but forgotten in academic and policy circles in industrialized countries. I will start my discussion on the new role for central banking after the recent financial crisis by discussing the factors that were behind it. Understanding these factors will be crucial to analyze if and how the objectives of central banks should be modified and potential tradeoffs between competing objectives. Finally, I will discuss the interactions between price and financial stability and the challenges for central banks in the new times. What caused the financial crisis? There are many candidates being pointed out as the culprits of the financial crisis of 2008–2009. Many have blamed monetary policy. In my opinion, even though monetary policy may have played a role, it was a secondary one.

We have learned the lessons, and our challenge now is to restore prosperity with more resilient financial systems. Central banks have an important role in this endeavor. BIS Review 76/2010  7  References Bernanke, B. and M. Gertler (1999), “Monetary Policy and Asset Price Volatility”, in New Challenges for Monetary Policy, Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, 26–28 August, pp. 77–128. Bernanke, B. and V. Reinhart (2007), “Conducting Monetary Policy at Very Low Short-Term Interest Rates”, American Economic Review, 94(2), pp. 85–90. Bernanke, B. (2009), “The Crises and the Policy Response”, Stamp lecture at the London School of Economics, 13 January 2009, London, England. Cúrdia, V. and M. Woodford (2010), “The Central-Bank Balance Sheet as an Instrument of Monetary Policy”, mimeo, Columbia University. De Gregorio, J. (2008), “La Gran Moderación y el Riesgo Inflacionario: Una Mirada desde las Economías Emergentes”, Estudios Públicos, N° 110, pp. 5–20, otoño. English version, Banco Central de Chile, Documento de Política económica No. 24. De Gregorio, J. (2010), “Monetary Policy and Financial Stability: An Emerging Markets Perspective”, International Finance, 13(1), pp. 141–156. Galí, J. and L. Gambetti (2009), “On the Sources of the Great Moderation”, American Economic Journal: Macroeconomics, vol. 1 nº1, pp. 26–57. Goodfriend, M. (2010), “Central Banking in the Credit Turmoil: An Assessment of Federal Reserve Practice”, mimeo, Carnegie Mellon University. Murray, J. (2009), “When the Unconventional Becomes Conventional – Monetary Policy in Extraordinary Times”, Remarks to the Global Interdependence Center, Philadelphia, Pennsylvania. 8  BIS Review 76/2010
In retrospect, of course, had we known that inflation would become as low as it did, we would have cut the rate sooner and faster. 10 This view is also supported by Goodfriend and King (2016). Somewhat surprisingly, the interpretation that unease over household debt was the main or even only reason for the increase of the repo rate 2010–2011 is still being put forward occasionally. One clear example that the economic slowdown in 2011 instead surprised most analysts is provided by the forecast made by the National Institute of Economic Research in June 2011. In this forecast, it was assumed that the repo rate would be 3 per cent by the end of 2012 and just over 4 per cent at the end of 2014 (in reality, the repo rate was 0 per cent at the end of 2014). This policy was considered compatible with a balanced resource utilisation in 2014 and a CPIF inflation rate close to 2 per cent in 2013–2015. This forecast, which was representative of Swedish forecasters, thus assumed that continued rate hikes would be justified for normal economic reasons. 11 For an analysis of the factors that contributed towards this low inflation, see Andersson, Corbo and Löf (2015). 5 [20]  But it is not particularly meaningful to evaluate events with the benefit of hindsight. For it to be meaningful, it has to be possible to identify things that could be done differently in a similar situation in the future.

The major initiative by the public sector has been the passage by Congress in July of the SarbanesOxley Act of 2002. Although most of the new laws governing public companies are not immediately effective - and many require implementing regulation by the Securities and Exchange Commission several provisions were put into effect right away. One of these provisions required CEOs and CFOs to certify, as of the second quarter of this year, that their quarterly and annual reports fully comply with the reporting requirements of the SEC Act of 1934 and that the reports fairly present the financial condition and operating results of the firm. Included in the legislation are criminal fines and imprisonment for false reporting. These critical efforts at reform recall the private/public sector cooperation that was so successful in the preparations for the Y2K century date change. Experience has shown that such cooperation works best when both sectors go beyond the need to solve the immediate problem - that is, when they work together to learn from past experience and to anticipate problems and thereby strengthen the financial system on a longer-run basis. Why is this private/public sector cooperation so productive? I would argue that it is because each sector has its part to play. The private sector is motivated by self-interest, the public sector by the public interest. In this instance, private self-interest and the public interest coincide: both have a stake in the healthy functioning of the financial markets.
Consistent with this, we can see that in their published accounts, banks are placing a fair value on some of their assets which is below the book value. 2  BIS central bankers’ speeches  This evidence, while informative, does not, for me at least, get to a conclusion on the need to add more nominal capital, or more particularly how much capital to add. To do that, we need to know more about the contribution of these various possible causes of market values of banks’ capital, and that must be the key next step in the work. On this, I would ask for the insights of banks themselves and analysts, because as I always say, I know one thing for sure, we don’t have a monopoly of wisdom, and this is a tough question. But, it is a key question, because the danger of a very slow resolution of the capital gap is that new lending to the economy is seriously restrained. This is the Japanese threat, based on the recent history of Japan, and the basis of the argument that a more aggressive approach to re-capitalising banks will create more support for new lending. Moreover, it does illustrate why we see a close interaction of the FPC’s two objectives, of resilience and growth. I need to see more evidence and analysis of why market values of banks’ capital are low before I can determine what and how much needs to be done.

First, when I read commentaries which go something like: “You wouldn’t believe how low Bank X’s modelled risk weights on, say, mortgages are”. I do note that the commentator can only observe the Pillar 1 capital requirement. They are not observing the judgmental overlay in in Pillar 2 which, as you can tell from the numbers I quoted, has gone up. The trouble is, this tends to suggest that Pillar 3 transparency is not working as it should do. This is all I am going to say today on models and RWAs, I will save that for another day. The second point on Pillar 2 is that, having built it up, we think that we can allow a relatively small part to be used to support the second objective of the FPC. Now, in terms of how we justify this, given the hierarchy of objectives that I described earlier, I believe that it is important to look at the interaction of resilience and lending as I set out. I think it is reasonable to conclude, and the FPC supported this action, that a reduction in the risk arising from this new lending caused by an improvement in credit conditions should help to offset the risk from lower capital buffers. In other words, if such extra lending boosts economic growth, it will enhance resilience in the financial system.
8 The discount rates on liabilities were linked to UK government bond (“gilt”) yields. This drew trustees to gilts, and away from equities, as a matching asset to their liabilities. The Pensions Act 2004 abolished the MFR and replaced it with a scheme-specific funding requirement that further embedded the market-value approach to liability valuation. At around the same time, FRS 17 required publication of corporates’ pension fund surpluses or deficits. This also had the effect of encouraging companies and fund managers to avoid volatile assets, such as equities, and purchase low volatility government securities to avoid large published swings in pension surpluses and deficits. These changes in regulatory and accounting rules are not unique to the UK. There have been a number of empirical studies of their consequences in other countries which point  7  This trend towards “de-equitisation” has been analysed, in a broader context, by McKinsey Global Institute (2011). 8  If a scheme’s solvency dropped below 90%, the employer had to restore it to 90% within one year; if a scheme’s solvency was between 90 and 100%, it had to be restored to 100% within five years. BIS central bankers’ speeches  7  clearly to them having encouraged a secular switch from equities into lower-duration fixed income securities, in particular government securities (Greenwood and Vayanos (2010)), Amir el al (2010), Andonov et al (2013)). Yet the consequences of de-equitisation, for the financial system and the wider economy, may be just as dreadful as the word itself (Furse (2014)).

In January, the Financial Stability Board (FSB) published a consultation paper on its proposed methodology for identifying non-bank, non-insurer globally systemically important financial institutions – or, in what may represent a  9  8  Data are adjusted to remove impact from re-valuation effects. BIS central bankers’ speeches  new high-water mark for impenetrable financial acronyms, NBNI G-SIFIs. Asset managers are being considered among this class. Based on the consultation results, the FSB will report to the G20 later this year. Views on that consultation will be interesting and I am sure at least some of you here will be offering some. We are in the intellectual foothills when understanding and scaling the transmission channels through which asset managers could generate systemic risk. And given the recent changes in the scale and structure of the industry – a world of less liquid assets and runnier liabilities – these channels may be more potent tomorrow than they were yesterday. Against this backdrop it may be premature, and probably imprudent, to be ruling out future sightings of asset management Black Swans. At the same time, as regulators we should avoid tarring all birds with the same brush. For example, even if the financial market externalities associated with asset management failure were found to be potentially large and damaging, some of the conventional too-big-to-fail solutions may not be the right ones. For example, because asset managers are essentially unlevered, leverage or capital-based tools may be the wrong tool to tackle market failures.
What there is much less historical precedence for is the failure of productivity growth to recover to its pre-crisis growth rate. A cottage industry of economists – including me – have tried to explain the so-called productivity puzzle. 3  2  Carmen Reinhart and Kenneth Rogoff (2009), “This Time is Different: Eight Centuries of Financial Folly”. Princeton University Press I set out my views in more detail in a speech in February. See: Ramsden, D. “The UK’s productivity growth challenge”, speech at Babraham Hall, Cambridge, 23 February 2018. Many other members of the MPC have also given their attention to the question – see for example: Tenreyro, S., “The fall in productivity growth: causes and implications”, speech at Queen Mary University of London, 15 January 2018; Haldane, A. G., “Productivity puzzles”, speech at the London School of Economics, 20 March 2017. 3  3  All speeches are available online at www.bankofengland.co.uk/speeches  3  Chart 3: The productivity (growth) puzzle 140  Index: 2008Q1 = 100  120 100 80 Labour productivity  60  Log-linear trend 40 20 0 1971  1976  1981  1986  1991  1996  2001  2006  2011  2016  Finally, with unemployment falling to near-record lows, and spare capacity being rapidly eroded, you might expect wage growth to have picked up at a similar pace.

Chart 12: Measures of domestically generated inflation 3.0  Per cent  2017 Q3 2017 Q4  2.5 2.0 1.5 1.0 0.5 0.0 Services CPI  Services PPI  Unit labour Private sector costs ULCs  Unit wage costs  GVA deflator GDP deflator excluding government  This is an important thing to bear in mind when looking at the current wage data. Before the financial crisis we were invariably in a “two plus two is four” world, with two per cent productivity growth and two per cent 15  All speeches are available online at www.bankofengland.co.uk/speeches  15  inflation yielding four per cent wage growth at least. Today we seem to be in more of a “one plus two is three” world: given one per cent productivity growth, wage growth only needs to reach three per cent, not four, to be consistent with the two per cent target. In our central forecast wage growth achieves that. And so although imported inflation falls back as the upward pressure from sterling’s depreciation comes to an end, domestic cost pressures keep inflation close to target in the medium term. Relative to this central forecast I can see risks in both directions. I have already mentioned the possibility that consumption growth might take a further leg down as households continue to adjust to lower real incomes. In that case GDP growth would be lower, spare capacity could open up and inflation could drop below target. But there are also risks from the supply side.