samchain/econo-pairs-v1 huggingface dataset:
The Riksbank considers that at present the Swedish economy has unutilised resources and even if growth does pick up during 1997 and 1998, it is unlikely that these resources will be activated to such an extent that the inflation target is in danger. The scenario in the December inflation report involves a gradual increase in the rate of inflation in the coming years. The main explanation for this upward movement is that the transitory effects - from lower interest rates and a stronger exchange rate - which kept inflation down in 1996 will be fading. The registered rate of CPI inflation is then expected to approach inflation’s underlying trend, which in the years ahead is judged to be more or less in line with the inflation target. Lower inflation propensity The new price and other economic information in recent months reinforces the impression that price pressure is low. To this extent, the conditions for fulfilling the inflation target have improved. On the other hand, a weaker exchange rate has already tended to stimulate activity. The outlook for inflation and the rapid progress in consolidating government finance suggest that there is room for a fall in long bond rates. Underlying economic factors indicate, moreover, that the recent depreciation has left the krona undervalued, so that it should appreciate. How should the exchange rate be assessed in connection with monetary policy decisions? According to experience in recent years, the impact of a depreciation on domestic prices is limited. But domestic demand has been weak.

The proposal to transfer responsibility for exchange rate policy from the Riksbank to the government makes it more difficult for the Riksbank to safeguard the value of money effectively and thereby contribute to a favourable level of interest rates and also - when this does not endanger price stability - to stimulate the economy and employment. In a world with free capital flows there is a direct link between monetary and exchange rate policies. The two policy fields may have conflicting goals. Moreover, if the government, via exchange rate decisions, can affect the ability of the Riksbank to fulfil the inflation target, there may be misunderstandings about where responsibility for the operation of monetary policy lies. In my opinion it may be reasonable - though this, too, is questioned by some economists - for the government to decide the type of exchange rate system Sweden is to have in relation to other EU countries, whether the krona should join the European exchange rate mechanism or remain flexible. There is a close connection here with the rules and regulations BIS Review 32/1997  -8-  that apply in the rest of the EU and the matter is very much a political issue. But within a given exchange rate system, it is the Riksbank that should decide an appropriate rate for the krona or the band within which it may move.
Over the period from 1985 to 2018, there is a continuing link between labour cost and price inflation in the four major euro area economies and across the three main sectors.11 Passthrough is on the whole strongest in the services sector, where wages account for around 40% of costs. That is important for the current inflation outlook given the resilience of services to the growth slowdown. What appears to be delaying the pass-through today is the fact that firms are absorbing labour cost increases by squeezing profit margins. This reflects two cyclical factors. First, the euro area is coming out of a prolonged period of low inflation, which historically leads to 12 3/6  BIS central bankers' speeches  a slower pass-through.12 One reason is that price dispersion is narrower when inflation is low, implying that if an individual firm were to raise its prices, it would attract the attention of consumers and lose market share. Firms are therefore more reluctant to pass on cost increases to consumers.13 The second factor is the softening of activity in 2018. Labour costs are typically passed on more strongly to prices when demand is stronger, 14 so the fact that the euro area has recently experienced a negative demand shock is likely to have held firms back from raising prices. The delay in pass-through may also be explained by an additional factor, which is lower imported inflation over the last two years.

First, in 2016 the US Consumer Financial Protection Bureau fined Wells Fargo USD $ million after uncovering that employees of the bank had created millions of fraudulent customers’ bank and credit card accounts over a period of many years in order to achieve annual sales targets. Driven by poor internal controls and short-term incentive compensation programs, employees signed up new accounts without customers’ consent, moved funds from their existing accounts, and charged fees on accounts and services customers had not signed up for. According to a report by the Bureau, “more than 1.5 million bank accounts were created, of which around 85,000 accounts incurred USD $ million in fees.1” Not surprisingly, public confidence in the bank plummeted. A survey of retail banking customers conducted in late 2016 suggested that 30 percent of customers were actively exploring alternative service providers2. Second, between 2013 and 2015 many countries in our ASEAN region were affected by haze pollution caused by illegal forest fires started to clear land for pulpwood and oil palm plantations. One of the countries most severely affected was Singapore, where for consecutive days air quality deteriorated to dangerous levels, forcing closure of schools and impacting outdoor business and tourist activities. It was reported that Singapore incurred as much as SGD $ million in economic loss3. Subsequent investigation indicated that responsible parties  1 https://files.consumerfinance.gov/f/documents/092016_cfpb_WFBconsentorder.pdf 2 http://cg42.com/wp-content/uploads/2016/12/cg42-Wells-Fargo-Mini-Study-102016vF.pdf 3  http://www.siiaonline.org/wp-content/uploads/2016/10/2016-04-Policy-Brief-SEA-Burning-Issue.pdf  2/7  included firms operating in Indonesia.
An important part of the process regarding macroprudential policy in Sweden is a close cooperation between Finansinspektionen, the Government, the Riksbank and the Swedish National Debt Office, with regard to the analysis of current issues. These four are also represented on the Financial Stability Council, which meets regularly to discuss issues of financial stability and how financial imbalances can be counteracted. I believe that it is much more important that there is actually someone who is responsible for the macroprudential policy tools and prepared to take action, than that this is perfectly coordinated with monetary policy. My hope is that the discussions in the Financial Stability Council will lead to the decision that need to be made actually being made – and being made in time. This will probably at times involve decisions that are politically uncomfortable, and have direct consequences for people’s wallets. This makes considerable demands with regard to integrity and independence – not just in the formal sense – of those who are to make the decisions. Does monetary policy need to help? There is an intensive international discussion on whether monetary policy can be separated completely from the stabilisation of the financial cycle, or whether it may in certain situations  10  See Jonsson and Moran (2013).

The crisis gave rise to a new policy area – macroprudential policy – which partly works by influencing the volume of credit in the economy, in roughly the same way as monetary policy. To me, it is fairly obvious that these two policy areas need to interact. If monetary policy is to carry out its tasks well, then macroprudential policy must function properly and most likely also vice versa. The crisis also made necessary a monetary policy that was in many leading countries more expansionary than ever before, and which was conducted in ways not previously tested. Given this, the debate that has arisen on international monetary policy spillover effects is perhaps not particularly remarkable. We do not yet know what our final conclusions will be with regard to these two areas. These are a couple of the loose threads that I am not able to tie up here today. However, a certain amount of new thinking will probably be required, both with regard to monetary policy and financial supervision and the regulation of the financial markets – but also concrete  31  See Ostry and Ghosh (2013). 32  A further possibility that I will not take up here, but which has been tested in emerging markets in particular, is to use capital regulation. For a detailed and partly critical review of the efficiency of capital regulation, see Klein (2012). BIS central bankers’ speeches  15  measures.
The type of auction for the injection of liquidity changed to fixed-price auctions, the collateral base for repo agreements expanded, the use of the required reserve increased from 20 to 40 percent, and the spread between the Bank of Albania’s key interest rate and overnight loan reduced from 175 to 75 basis points. Third, through a special act, the Bank of Albania required higher capitalization of banking activity from the banking sector, adding to the guarantee of the banking sector’s financial soundness. Current financial system developments show that the overall situation in the banking sector has improved constantly. Deposits are back to the banking system, attesting to the improved public confidence. 2  BIS Review 118/2009  Credit to economy has also shown signs of recovery. Another positive development relates to the fact that lending in the Albanian Lek has increased considerably. The European markets have been performing amid a more optimistic climate. Statistics show that the recovery of the crisis began even before the most optimistic forecast. Distinguished guests, I believe the prominent panellists and the central bank governors of our region will address all the issues related to the crisis and the lessons drawn from it thoroughly. However, allow me to briefly address some issues I believe are of interest to the audience. First, the large-scale globalization of the world economy in the past two decades could not but spread the crisis throughout the world; consequently, there was an immense need for coordinated protection at an international level.

I once told a friend of mine that small open economies, as is the case with the Balkan economies, are net importer of goods, services and crises. The crisis did not originate in the region. It was gradually transmitted as a result of the integration of the region with the global markets and economy and a consequence of the presence of large international banking groups. Our countries are all as similar as they are different. Consequently, the form, outburst and consequences of the crisis were as similar as they were different. The economic and social structure, the level of convergence and integration with the global markets, the legal and institutional norms and the nature of exchange rate regimes in particular, have established the features of the crisis for each country. The experience of the distinguished governors present in this conference will throw light on the above aspects. As regards the Albanian case, the last 12 months have been challenging for the banking industry. Despite the turbulent times, the banking system has in no case shown any signs of panic or confusion. The Bank of Albania considers that the rationale behind is the prudence shown in the recent years with respect to the banking system’s financial stability. The high level of resilience and the quick recovery were a consequence of a number of important decisions.
Finally, the re-pricing of assets in world equity and bond markets have created unfavorable conditions for raising capital and have, to some extent, held back consumption through the negative wealth effects. Access to world capital markets has become more limited for developing countries and we have observed a major reduction in capital flows into these countries. Over the past few months, the external environment seems to have deteriorated quite considerably. The events of September 11th and the developments thereafter have put global financial markets on edge while exacerbating the already weak US economy, primarily through the effect on consumer confidence. Global demand continues to stagnate while difficulties in Latin America have heightened market uncertainty, increased investor’s risk aversion and tightened financing to emerging markets. In such a situation, it is important for the Government to come forward and play a major role in stabilizing and supporting the economy. In this light, I believe that the authorities here in Thailand have done a  BIS Review 99/2001  1  commendable job in providing the economy with timely fiscal support while adhering to fiscal discipline. Fiscal policy has been expansionary and the decision to increase budget spending this year was warranted. The central government deficit of 159 billion baht (equivalent to 3.2 percent of GDP) for the 2001 fiscal year provided the needed support for economic activity and the budget disbursement rate of 88.4 percent relative to the targeted 89 percent was an improvement from the past.

In light of the information currently available, and against the background of the Bank of Thailand’s long-run goals of price stability and sustainable economic growth, I believe that the risks at present are weighted mainly toward conditions that may generate economic weakness in the foreseeable future. Such weaknesses could come from further retrenchment of business and consumer confidence, undershooting of fiscal expenditure targets, and slower than expected recovery in the industrialized countries. Whatever risk ultimately materializes, we would make timely and decisive adjustment of our monetary policy. With strong international reserves, at 140% of short-term debt, we can afford to adjust our monetary policy to support growth, if needed. At this juncture, I would like to stress that the Bank of Thailand remains committed to the open and transparent monetary policy framework that has served us well since May 2000. Let me emphasize that inflation targeting is a framework, not a rule. Just as the case of a real-life anchor, inflation targets keep the economy on the desired growth path in the long run, while permitting it to respond in the short run to unpredictable tides and currents. As long as the inflation rate is within the targeted range, I believe monetary policy is allowed sufficient flexibility to address other challenges currently facing our economy. Given the supportive policy mix, the recovery process in Thailand should remain on track for next year.
8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Chart 3: Estimated contributions to annuity  Chart 4: Component of annuity rates not  rates, using the relationship in Table 1 over  explained by risk-free rates using the  2007-16  relationship in Table 1 over 2007-16  Residual Risk-free rate Annuity rate (actual)  Corporate bond spread Constant Per cent 8  Residual  Per cent 1.0  Corporate bond spread  7  0.8  Component not explained by risk-free rate, excluding constant  6  0.6  5  0.4  4  0.2  3 0.0  2  -0.2  2017  2016  2015  2014  2013  2012  2011  -0.6 2010  -1  2009  -0.4 2008  0 2007  2017  2016  2015  2014  2013  2012  2011  2010  2009  2008  2007  1  Sources: Bank of America Merrill Lynch, Bloomberg,  Sources: Bank of America Merrill Lynch, Bloomberg,  sharingpensions.co.uk and Bank calculations. sharingpensions.co.uk and Bank calculations. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9

Second, we have a number of rigidities in nominal wages. We have a number of rigidities in some prices, so that fuels automatically certain rises in core inflation normally, and for the time being we have not seen that change significantly. Third, when we look at long-term inflation expectations, until now they have remained well anchored to our definition of price stability. So these three reasons make me think is that what would normally happen is that after a trough inflation will come back to somewhere close to our definition of price stability. But of course we have to remain cautious and be ready to act, and certainly if we felt there had  BIS Review 29/2009  3  been a change in these various elements we should ask ourselves if other non-standard monetary policy actions might be necessary. FT: Classic quantitative easing? CN: For instance? FT: Buying government bonds? CN: Possibly. FT: Axel Weber has said 1 per cent would be the floor for the ECB main policy rate. Others have said zero could be possible. Where do you stand? CN: I’m pragmatic. We have certainly not decided in advance that there is a minimum level that would be our floor. But there are a couple of things that we need to take into account. First, it is a general rule that the more you cut rates and you approach zero, the less efficient are the moves in terms of transmission into the real economy.
To that end, it is of key importance to move unstable offshore krónur out of the hands of those who cannot hold them and do not want them and into the hands of investors prepared to commit capital in Iceland for a long period of time. It is also important that the general conditions provided for in the liberalisation strategy be met as fully as possible, for this will reduce the risk of instability when the controls are lifted. These conditions include ample foreign exchange reserves, Treasury access to foreign credit markets, and a sound banking system that can fund its activities in an environment free of capital controls. Great strides have been made in this respect, as can be seen in the Treasury’s foreign bond issue last summer, the Bank’s sizeable foreign exchange reserves, the prepayment of loans from the IMF and our Nordic neighbours, improvements in Iceland’s sovereign credit rating, declines in Iceland’s CDS spread, and the banks’ sound capital position in spite of the court judgments handed down in cases involving exchange rate-linked loans. But it is also important that the Treasury’s net domestic borrowing need be as small as possible once liberalisation begins, as it is probable that financing costs will rise sharply at that point in time. In this context, it is interesting to note that the Treasury’s real domestic financing costs in 2011 were negative by roughly 0.7%. It is therefore vital to adhere closely to the plan to achieve an overall Treasury surplus in 2014.

But there are also signs that interest rates in Iceland are low enough relative to corporate inflation and exchange rate expectations that some firms consider it in their best interests to convert foreign loans to domestic currency, which could be positive in the long run but puts pressure on the króna at present. This is one example of how the domestic interest rate level can affect the exchange rate in spite of the capital controls. Finally, recent exemptions from the capital controls, which the Bank has granted in cases where the exemptions were important for the growth and performance of the firms concerned and benefit the Icelandic economy in the long term, have affected the foreign exchange market in recent weeks. In some instances, these exemptions have triggered short-term outflows, even though they may generate increased foreign exchange revenues in the future. This is why the Central Bank intervened in the foreign exchange market earlier this month. Judging from recent public discussion, it appears to be a commonly held misconception that a currency depreciation within a capital controls regime is in itself a sign of a major problem. The króna can – and should – fluctuate within the capital controls, even if they work perfectly. Trade in goods and services is unrestricted, firms and institutions are free to service their foreign debt, and all capital and the resulting outflows are unhindered. And all of these variables can fluctuate. The main aim of the capital controls is to stop uncontrolled currency outflows related to capital account transactions.
The evidence at our disposal shows, on the contrary, that the instruments we are currently deploying are having the effect intended. With this in mind, in my remarks this morning I would like to review both the nature of global factors affecting inflation dynamics today, and the developments in core inflation that are more determined by domestic factors. Whether low inflation stems from one or the other, the central bank can act proactively to counter risks to price stability and maintain the anchoring of inflation expectations. In the euro area we have proven that our monetary policy tools work and, with the right calibration, have sufficient traction over the economy to deliver our medium-term mandate. This was reflected in the Governing Council’s decision yesterday to expand our monetary policy stance. The role of global inflation Over the last decade there has been a growing interest in the concept of “global inflation”. This is the notion that, in a globalised world, inflation is becoming less responsive to domestic economic conditions, and is instead increasingly determined by global factors. 1 Looking at the drivers of inflation across advanced economies today, we do indeed see a strong global component in low inflation. Decomposing inflation for the average OECD country, it is clear that since mid-2014 there has been a notable decline in domestic shocks  1  Inflation as a global phenomenon has been documented e.g. by M. Ciccarelli and B. Mojon (2010), “Global Inflation”, The Review of Economics and Statistics, 92:524-535.

Specifically, we decided to lower the interest rate on the deposit facility by 10 basis points to –0.30% and to extend the APP. The monthly purchases of € billion under the APP are now intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term. We will also reinvest the principal payments on the securities purchased under the APP as they mature, for as long as necessary. To help you appreciate the import of the overall recalibration of our asset purchase programme, you should consider that the extension of our net purchases to at least March 4  BIS central bankers’ speeches  2017 and the decision to re-invest the principal payments on maturing securities for as long as necessary will add EUR 680 billion – some 6.5% of the euro area GDP – in liquidity to the system by 2019, relative to the situation that would have prevailed under previous policies. This will strengthen our forward guidance on interest rates and ensure that liquidity will remain very supportive in the long term. There was very broad support among members of the Council for recalibrating our instruments to put inflation trends back on the path towards 2% that we envisaged when we launched our purchase programme.