samchain/econo-pairs-v1 huggingface dataset:
The improvement in Norway’s terms of trade is without parallel in our recent history. We have to go back to the boom period at the time of World War I – a period portrayed so vividly by Johan Borgen in his novel “The Dark Springs” – to find anything similar. Developments in other countries have been less favourable. What started as a banking crisis in the US and the UK has developed into a sovereign debt crisis, with Europe at the epicentre. Austerity measures and economic contraction are now going hand in hand. Social unrest is spreading. Unemployment in many countries has risen to alarming levels. Economic growth is weak, particularly in Europe, constrained by uncertainty and fear of new setbacks. Both the public and private sectors are focusing efforts on reining in debt. Banks are consolidating their balance sheets and reducing lending to businesses and households. In the US, the formulation of fiscal policy has yet to be clarified. There too, households and businesses are hesitant to increase spending on consumption and investment owing to the uncertainty. Chart 3: Public debt to GDP ratio Total sovereign debt in advanced economies is almost as high as it was after World War II, following a period of soaring, debt-financed military spending. The long post-war boom helped to reduce debt. Experience shows that it is difficult to restore growth after a financial crisis.

Second, the “storm broke out”: after the default of Lehman Brothers, it became evident that such standard measures were no longer sufficient to achieve price stability in the euro area. We therefore provided enhanced credit support and, later on, non-standard credit operations in the light of the increased liquidity demands from the banking system. To avoid potential collateral shortages when satisfying this increased demand, we expanded the range of assets against 2/4  BIS central bankers' speeches  which banks can draw liquidity from the Eurosystem. But at the same time, we followed the principle of risk equivalence with the assets accepted under the pre-crisis rules. Let me give you a concrete example: since 2012, several national central banks of the euro area, including the one hosting this conference, have accepted additional bank loans as collateral. To ensure risk equivalence, haircuts on these assets were higher than those used in regular operations. This brings me to the third phase of the crisis, the “crosswinds”: in recent years the continued decline in inflation rates in the euro area called for additional non-standard measures – I am referring, of course, to the asset purchase programmes. This type of liquidity provision was a novelty for the Eurosystem, although the instrument of outright purchases has been envisaged as one of the legal and operational tools of the Eurosystem since its inception. Accordingly, additional risk control frameworks needed to be developed to keep the financial risks in check given the significant rise in exposures.
8 So, although we cannot entirely discount the role of monetary policy as a tool for averting financial crises, it is not reasonable to assume that monetary policy can do this on its own: 9 at least not without risking serious side effects in the economy as a whole. The repo rate affects the entire economy and cannot be directed at specific markets alone. It can thus have a negative impact on sectors that are not overheated. Increasing the repo rate in order to mitigate household credit growth and increases in housing prices also makes it more expensive for firms to fund new investments. In situations in which investment is low and unemployment is high this is something one wants to avoid. In such situations it would be inappropriate to use the repo rate as a means of pursuing macroprudential policy. My view is that it is only justifiable to use the repo rate in this way in cases where there is reason to believe that the central bank is the only body that can take measures to counteract what appears to be an unbalanced development. So what about fiscal policy? Can’t fiscal policy be used to counteract an unbalanced development? Yes, under certain circumstances. As I mentioned earlier, stricter budget discipline would probably have counteracted overheating in some European countries, but it could not of course have averted the financial crisis, which was largely “imported”.

This is a lesson we learned from the Swedish banking crisis of the early 1990s 11 – and a lesson that proved useful during the crisis of 2008–09. 12 How we communicate is, however, something that we need to work on and develop constantly. At present, we are trying to improve our communication concerning our assessments of the risks in the financial system. Not least, we want to be even clearer about how we want the banks and other financial agents to respond to these assessments. We are therefore currently developing ways and means of presenting our recommendations to the participants in the financial sector. From this it follows that we also need to review ways and means of following up the recommendations we have made. The recently-formed macroprudential council also means that we will be able to coordinate our communication with that of Finansinspektionen to a greater extent than before. Macroprudential policy needs clear mandates and effective tools The cooperation between the Riksbank and Finansinspektionen will probably lend greater weight to the communication of risks and countermeasures, which is good. But the new macroprudential council does not make any decisions on its own. The council will not alter the independence, responsibility and decision-making powers of the Riksbank and Finansinspektionen. Consultating and “communicating” risks are all very well, but in the long term we probably need something more than an advanced forum for discussion. This is why I believe that the macroprudential council is only a temporary solution.
We also use a number of other, simpler models as economic indicators. But although developments in this field have made huge advances, the models cannot entirely capture the complex reality we live in. They have their limitations and deficiencies and it is important to be aware of these. And of course we do not base our forecasts and decisions solely on what the models show. Their results are supplemented to a large degree with expert analyses. This applies in particular to situations like the current one, when certain mechanisms in the economy are not functioning entirely as normal. But despite model-based analysis having certain deficiencies, the developments in this field mean we have obtained a much more useful aid in our work. We can act work in a more systematic manner when making our forecasts than was possible before and I would also claim that we have a better base for making our decisions. This has also made it possible to become even more open and clear with regard to our view of the future. There is a positive interaction here. As I mentioned earlier, the openness acts as an extra incentive with regard to developing our working methods. It is not only with regard to monetary policy that we have made progress in our working methods. The tools for analysing the stability of the financial system have also been improved. This increases the chances of detecting at an early stage changes and vulnerabilities that could lead to a serious crisis.

I maintained that this inflationary impulse and the risk of contagion effects to other prices and wages were something that could become the first serious test for low-inflation targeting around the world. Seven months later, this prophecy does not seem so relevant any more. Commodity prices have fallen and inflation has begun to drop back from the high levels seen in the summer. The challenges now faced by central banks are of an entirely different nature than those of just a few months ago. Now the most important challenge is to safeguard the stability of the financial system and to try to limit the negative effects on production and employment. But I would nevertheless like to point out that what I said in May was important, although the financial crisis has come in between and made the problem of rising commodity prices less relevant for the time being. There were several explanations as to why commodity prices rose so sharply. But the one I considered – and still consider – to be most important was that emerging economies with large populations, such as China and India, have increasingly begun to take part in the competition for global resources – resources which in many cases are finite. This is probably a fairly lasting and long-term driving force. The emerging economies are undergoing a structural transformation that will probably take some time. Their demand for commodities will probably remain high in the future.
In the coming  1  When these countries are weighed together in relation to their significance for Swedish foreign trade using the KIX index, the euro area accounts for almost 50 per cent. BIS central bankers’ speeches  1  period, domestic demand is expected to continue to strengthen, at the same time as the economic improvement abroad will help exports to gradually pick up. When growth in Sweden accelerates, unemployment is also expected to fall. All in all, we see a fairly clear improvement in economic activity ahead of us. …but inflation is too low The Swedish economy’s international dependence applies not only to the real economy, but also to inflation. It is clear that inflation in several of our important export regions has shown a downward trend in recent years (see Figure 1). Given this, central banks abroad have conducted a very expansionary monetary policy. In our most recent assessment in July we also revised down our forecasts for policy rates abroad (see Figure 2). The low inflationary pressures abroad are one explanation why inflation in Sweden has been low in recent years. When measured as the CPIF, where the effects of the Riksbank’s repo-rate changes on mortgage rates are excluded, inflation has been clearly below the target of 2 per cent since the start of 2012, and since the end of last year it has fallen further (see Figure 3).

SPEECH DATE:  7 December 2016 (Correction 12 Dec 2016, Figure 8 has been corrected in this version)  SPEAKER:  Deputy Governor Per Jansson  VENUE:  Swedbank, Stockholm  SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergst org 11) Tel. +46 8 787 00 00 Fax +46 8 21 05 31 registratorn @ riks ban k.se www.riksb ank.s e  Time to scrap the inflation target? * To avoid keeping you on tenterhooks, I shall begin by answering the question in the title of my speech. No, it is not time to scrap the inflation target, in case any of you thought I wanted to. The question is of course rhetorical. The reason I ask the question is that I think it has been the focal point of the recent debate in Sweden, although it is not usually expressed so directly. Following the financial crisis the foundations of monetary policy certainly have been discussed and questioned around the world. But my feeling is that the debate has been driven further in Sweden than in most other countries. Monetary policy in Sweden has often attracted interest from other countries. One reason is that we have often been among the first to implement changes in the monetary policy framework and thus become an interesting object of study. As is well-known, Sweden was one of the very first countries to introduce inflation targeting in the early 1990s, and we have in many respects remained at the front edge since then.
Mr Bäckström looks at the Riksbank and financial system stability and comments on the LTCM case Speech by Mr Urban Bäckström, Governor of Sveriges Riksbank, to the Swedish Economics Association in Stockholm on 25/2/99. Financial stability is a topical subject in the light of events in the past yeara year that saw continued financial problems in Asia, the devaluation of the rouble and suspended payments in Russia, considerable turbulence in western financial markets and financial unrest in Brazil. What happened last autumn, when it was considered that problems for a single playerthe hedge fund Long Term Capital Managementmight create grave difficulties for the financial system in the United States, highlighted risks of a new type. The LTCM case can be seen both as an extreme example of what could happen in Sweden’s financial markets and as a serious reminder that the continuous development of financial markets is liable to give rise to new risks. The suspension of payments in Russia and its consequences should likewise lead us to reflect on the risks in the system. Today I shall be discussing the problems behind last autumn’s events in the U.S. market and the fact that a systemic crisis was judged to be imminent. First, however, I shall briefly sketch the background and explain stability’s central importance for the Riksbank. Background There is nothing new about financial crises. Over the centuries they have repeatedly hit financial systems in the industrialised world, as well as in less developed countries.

The competent parties must endeavour to find solutions that combine the necessary market regulation and supervision with the advantages inherent in capital mobility. A completely regulated market reduces capital flows and generates large fluctuations in market prices, leading in turn to welfare losses. But neither is a market without any common rules and supervision an ideal remedy. Operations in financial markets need some degree of supervision but this must not paralyse the potential for developments that can contribute to higher prosperity in the global economy. BIS Review 23/1999  8
This Construction Sector Group has found that approximately one-third of unemployed construction workers lack occupational experience and around 6 per cent also lack formal training. In that the average age of construction workers is rising and young people do not find construction work attractive, the bottleneck  5  BIS Review 18/1999  problems may become even greater in the future. In order to prevent this from leading to sizeable problems, proposals have been put forward for increased mobility, improved competence and marketing of construction courses, for example. Construction costs are measured by the factor price index (FPI); the largest item is wage costs. The price of completed dwellings, on the other hand, is measured by the building price index (BPI), which also includes the construction companies’ productivity and profit margins. These indexes do show relatively large price increases but there are no actual signs of any direct risks of an inflationary development in Sweden in the coming years, provided that the bottleneck problems do not increase. The rising costs associated with earlier upswings in activity have been connected with the contemporary subsidy systems as well as the high degree of concentration in the construction market. The revised system for financing residential construction has appreciably reduced one of these problems: construction companies as well as consumers are exposed more directly to production costs. But the problem of concentration in the construction market still remains and may be a future cause for concern.

Growth since 1993 has averaged almost 3 per cent a year. The deep recession and good investment activity since then have meant that in this period there has been a supply of unutilised resources. As a result, inflation has remained low even though growth may have been somewhat above the level that can be regarded as sustainable. Moreover, Sweden has begun to repay external debt and government finances have recovered after the crisis in the wake of the 1980s bubble. In recent years household earned income has been able to grow strongly in real terms, partly thanks to the low inflation. Altered monetary policy process The laws that regulate the Riksbank were amended with effect from the beginning of this year. Monetary policy’s objective is now explicitly stated to be to maintain price stability. The Riksbank has a new Executive Board, consisting of six full-time members, that independently decides monetary policy issues. The new Executive Board entails some changes in the work on monetary policy. The centre of attention is the Board’s specific monetary policy meetings, which it is envisaged will be held eight to 10 times a year. Decisions about the repo rate, for example, will normally be taken at those meetings. A brief account of the Board’s decisions is to be presented in a communiqué the day after the meeting; a more detailed picture of the discussions will be available in the minutes of the meetings, which will be published with a time lag of six to eight weeks.
This does not mean that the Riksbank’s tasks would disappear, however, as claimed time and again by one of my predecessors Lars Wohlin. The majority of the Riksbank’s tasks would remain relatively unaffected by our participation. As I just mentioned, this applies to our work on financial stability, which would essentially remain a national responsibility for the foreseeable future. The Riksbank’s operational tasks such as monetary policy transactions, the management of the Riksbank’s assets, the collection of statistics, the management of banknotes and coins and various administrative tasks would also remain. I also object to the claim that the Riksbank would become a branch office of the ECB. In actual fact, the national central banks of the Eurosystem own the ECB. If Sweden were to join the Eurosystem, we would become a member of the board and be able to influence how the system as a whole develops in the future. That is hardly an opportunity available to local offices of other organisations. In addition, the Eurosystem is a decentralised system, in which the vast majority of tasks are carried out by the  BIS Review 29/2003  7  national central banks. Many tasks are also performed at national level completely outside the framework of the Eurosystem. The main change if Sweden were to participate in monetary union would be that decisions on the interest rate level in Sweden would be taken by the ECB Governing Council instead of by the Executive Board of the Riksbank.

Additionally, the potential benefits from electronic delivery channels need to be exploited without undermining the security and confidence of the banking public. The growing incidences of e-banking scams globally present banking institutions with the challenge of being one step ahead by deploying security measures that will provide customers with the highest level of confidence. Technological development has also redefined the landscape of the payment systems industry with the introduction of new payment instruments and new delivery channels, as well as the entry of non-banks into payment services once thought to be the domain of banking institutions. While a vast array of electronic payment systems and instruments have been introduced against a background of more flexible regulatory policies, the use of cheques remains pervasive, accounting for more than 90% of the non-cash retail payments in Malaysia. Significant development efforts and initiatives have been taken aimed at increasing the safety and efficiency of payment systems infrastructure, including upgrading funds transfer systems, migrating all magnetic stripe ATM and credit card infrastructure to a chip-enabled environment, and introducing payment platforms that leveraged on the Internet. These trends underpin the challenge for banking institutions to accelerate the adoption of electronic payment instruments and channels amongst consumers to gradually replace paper based payment instruments. 2  BIS Review 32/2005  While significant investments have been made to develop the network infrastructure, banking institutions should capitalise on the opportunity to further drive cost reductions and reap efficiency gains.
Even as regional economic integration increases in Asia and other parts of the world, these economies seem a long way from the point where economic, or political conditions, will make a compelling case for monetary integration. In Europe, of course, the political case for monetary integration to a large extent preceded the economic case. And the architects of the European Union integration worked consciously to induce a level of economic integration in Europe that would induce conditions that more closely met the economist's test for an optimal currency area. For most of the emerging markets today, in contrast, the challenge is to establish the conditions that will enable them to live more comfortably in a world where their exchange rates will adjust more freely in response to changing fundamentals. As these economies become more open to capital flows, they will necessarily find it more difficult to occupy the tenuous middle ground with an exchange rate regime that is neither fully fixed nor flexible, but managed in a way that closely tracks the value of the dollar or carefully constrains fluctuations against the dollar. This does not mean that these countries can be indifferent to exchange rate movements or that the exchange rate is irrelevant to the conduct of monetary policy. For many small open emerging economies, price stability and exchange rate stability are obviously intertwined, and a monetary rule that responds effectively to inflation pressure cannot afford to overlook the signals coming from the foreign exchange market.

In any case, the problem with the exchange rate choice was not the decision to let the rate adjust, but the decision to resist it and the role that played in magnifying the bubble, and thereby the subsequent damage from the fall. Given where we are today, and what we know about the relative merits of flexible and fixed exchange rate regimes, what is the likely evolution of the current monetary system going forward? A few concluding observations. First, I think it is unlikely that we will see a substantial move toward monetary integration involving the major emerging market economies, in Asia or in the Western Hemisphere. As the economist Peter  2  BIS Review 44/2007  Kenen writes in his latest book, it is difficult today to envisage a substantial reduction in national currencies though the emergence of large regional monetary unions where they do not already exist. Within Europe, we may yet see a further enlargement of the euro area. There may be other circumstances in which individual economies can derive benefit from a currency board system or from dollarization or euroization. Countries trying to emerge from a period of high inflation may in the future, as they have in the past, adopt a fixed exchange rate as a nominal external anchor for a disinflation strategy. These seem likely to be exceptions, however, to a general move toward more flexible exchange rate regimes.