samchain/econo-pairs-v1 huggingface dataset:
Demand slump following the onset of the financial crisis (2008–2011) The key event following the onset of the financial crisis was the collapse of the Lehman Brothers investment bank in September 2008. The subsequent weeks and months saw a sudden, substantial slump in demand for goods and services. Between 2008 and 2009, global imports and exports fell by some 25% in nominal terms, the sharpest decline since records began in 1948. The euro area, and the neighbouring countries examined here, slipped into recession (cf. chart 2). GDP in the euro area plunged by around 5% in 2008 and 2009, at the height of the crisis. The drop in the neighbouring countries ranged from 3.4% in Switzerland to 7.2% in Denmark, whose economy had experienced a phase of overheating in pre-crisis years. Inflation rates fell sharply due to lower demand and falling oil prices (cf. chart 3).1 Inflation in the euro area declined to −0.6% in the course of 2009. The lowest inflation recorded during this period was −1% in Switzerland. In the Czech Republic, too, inflation was negative for a short period in 2009. In Denmark and Sweden, it remained in positive territory. Central banks reacted to the global slump in demand with drastic interest rate cuts – the conventional monetary policy instrument (cf. chart 4).2 In addition, markets were provided with large amounts of liquidity. In the Czech Republic, Denmark and the euro area, there was still leeway for further steps even after these interest rate cuts.

But I will also assert that, when major disruptions occur, central banks cannot always keep inflation and growth stable within a targeted range. This, in turn, is not a new insight per se, in that it adheres to the central banking consensus that monetary policy should be geared to the medium term, and that, depending on the environment, certain short-term fluctuations in output and inflation are unavoidable. Allow me to begin by providing a definition of what is meant by an independent monetary policy. A country with free movement of capital has two means of achieving monetary policy goals like price stability. First, it can peg the exchange rate of its currency to a foreign currency, thereby adopting the other country’s monetary policy. If the two economies move in parallel and the monetary policy of the other country is sufficiently stability-oriented, price stability can be imported by this means. Or, second, a central bank can pursue a monetary policy that is BIS central bankers’ speeches  1  explicitly tailored to suit the specific needs of that country. The monetary policy trilemma is that, given free capital movement, such a tailored, independent monetary policy is only possible with a floating exchange rate. Of course, as a small open economy pursuing an independent monetary policy, Switzerland is also exposed to global influences, and particularly to those from within Europe. First, trade relations are of central importance; fluctuations in consumer demand within the euro area are reflected in the exports of neighbouring countries, and influence their economies.
It is an irrefutable empirical fact that inflation variability rises with the level of inflation, which in turn increases uncertainty for investors and long-term interest rates through a rise in the inflation risk premium. A permanent increase in inflation curtails, rather than stimulates, long-term growth. A considerable body of empirical research finds that the Phillips curve has a negative bent in the long run: inflation and inflation volatility penalise capital formation and thus detract from the economy’s growth potential. Empirical evidence confirms this negative relationship, with a 100 basis point permanent increase in inflation being associated with a 10–30 basis point decrease in trend output  2  BIS Review 22/2010  growth. Hence, if this is applied to the euro area, a 4% inflation target would shave no less than half a percentage point per year off trend growth! As for using monetary policy to manage macroeconomic risk, it should be recognised that this would introduce harmful asymmetries. It avoids policy restriction when positive supplyside shocks reduce inflation, fuelling asset price booms; and when the asset price boom finally turns into a bust, it leads central banks to overreact to negative demand-side shocks. So, financial instability meets two formidable multipliers, the first being a pro-cyclical monetary response to expansionary disinflations in good times and the second being moral hazard in financial markets, namely the expectation that the central bank will aggressively protect the markets from “tail events” in bad times. These expectations encourage markets to tend towards risky strategies, over-exposures and exuberance.

I believe that these fears and concerns are unfounded and that Thailand will persevere. Our outlook for the Thai economy in the medium term is positive. Our forecasts show the Thai economy growing by 4-5 percent in 2007 and by 4-5.5 percent in 2008. These are respectable growth estimates for Thailand in light of the challenges and our focus on growth with stability. In the rest of my talk, I will address in detail the challenges and prospects for the Thai economy going forward. This brings me to the first of my three key points. The first key point is that the Thai economy is no stranger to difficult challenges. And we have always persevered in each instance. In 1997, we had the Asian crisis and undertook painful reforms; in 2001, the global economic downturn adversely impacted the Thai economy; and in the past two years, we had the Tsunami, SARS, the avian flu, southern unrest, political uncertainty, and the recent oil shock. The recent oil shock in particular proved to be a difficult test for the Bank of Thailand. High oil prices have two adverse effects: pressure on prices and a drag on economic growth. Tightening interest rates is the Bank of Thailand's primary defense against inflation. However, high interest rates would burden firms and households already trying to cope with high oil prices. Domestic demand would be adversely affected. There was no clear or easy choice to make.
Therefore, the previous evidence suggests that the economic policies implemented at national and supranational level have been successful in dealing with firms’ short-term liquidity risks. 9  Firms’ solvency risks  Let me now focus on firms’ solvency risks, which have also increased as a consequence of the COVID-19 crisis. On the one hand, the contraction in turnover has a negative impact on firms’ earnings, reducing their ability to repay existing debts. On the other, firms posting losses will experience a reduction in their equity while the coverage of liquidity needs with fresh debt implies an increase in their indebtedness. As a result of these trends, firms end up with a weaker composition of their liabilities. Available data for 2020 already show a deterioration in the financial position of the corporate sector. The Quarterly Central Balance Sheet Data Office Survey, which includes information from around 900 firms, mainly large corporates, shows that during the first half of the year the average Return on Assets (ROA) of this sample of firms fell to 2%, 2 pp below the figure for the same period in 2019. Moreover, the percentage of firms posting losses rose by more than 11 pp, to 37%.4 This survey also shows that the average debt-to-asset ratio of these firms rose by 1.5 pp, whereas the debt-to-earnings ratio increased more significantly due to the sharp fall in earnings. 4  See Menéndez, M. and M. Mulino (2020): “Results of non-financial corporations to 2020 Q2,” Analytical Article, Economic Bulletin, Banco de España.

In the short term, a financial institution that is seen condoning money laundering and terrorism activities will lose public confidence and the confidence of their depositors. The institution will also face higher liquidity risks as funds derived from illegal activities tend to be less stable. Ultimately, in the long term, coupled with higher cost of doing business, the institution’s ability to perform its important economic intermediation process will also be affected. Understanding of money laundering and terrorism financing risks is key for an effective AML/CFT measures For an AML/CFT measure to be effective, we need to understand our money laundering and terrorism financing risks and vulnerabilities. Understanding of the risks will facilitate our efforts in channeling our resources and priority towards areas that would pose the greatest risks to the country and the institutions. Recognising these needs and in line with the requirements of the FATF Standards, at the country level, we had conducted a national risk assessment (or the NRA) to identify, assess and understand specific money laundering and terrorism financing threats in the country, in particular the scale, sources and methods of those threats, as well as the vulnerabilities and risks across various sectors. We will share with you shortly the result of the NRA so that you will have better understanding of the risks at the country’s level. Subsequently, the results of this NRA needs to be translated into your institution’s own policies, procedures and risk controls. Effective AML/CFT regime is important.
Although technically these entail secured deposits with banks, they are not money holdings that get spent (on assets or goods), and are matched pretty well by secured (repo) loans to other parts of the financial system. The ‘OFI’ category is somewhat amorphous, including for example both private equity funds and Special Purpose Vehicles. Collectively, their holdings of bank deposits have been growing at an annual rate of over 40% for the past two years. It is extremely difficult to judge the macroeconomic significance of this, not least because no breakdown is available of the money holdings of different types of ‘OFI’. On the one hand, it may be uninvested cash, reflecting for example the wave of fund raising by the private equity industry. That is most definitely cash to be invested in the equity market, but such fund raisings are highly publicised and conceivably may already have been discounted in  13  ‘Other’ in the sense of not being a member of the monetary sector (commercial banks and building societies). 14  Chrystal K A and P Mizen (2001), ‘Other financial corporations: Cinderella or ugly sister of empirical monetary economics’, Bank of England Working Paper, No. 151. 15  The other intermediaries grouped with securities dealers include financial leasing companies and bank holding companies. BIS Review 2/2007  5  equity prices via M&A speculation. As for SPVs, they are used for all sorts of purposes. Some effect transactions within banking groups, and should ideally be netted off.

If the trilemma is in fact a dilemma, then countries will have to choose between monetary independence and closing their capital accounts. 2/4  BIS central bankers' speeches  I would question the generality or starkness of this dilemma. For example, I do think that the euro area can determine its own course. Our asset purchase programme has contributed to a spread exceeding 250 basis points between the 10 year yields in the US and in Germany. Likewise, the gap between policy rates in the US and the euro-area is the widest since 2009. More technically, an estimated Taylor rule for the euro area that includes US monetary policy as one of the explanatory factors finds only a very modest co-movement between the two. What is more, countries seem to be arranged along a continuum, with some exhibiting total independence at one end to those with exchange rates pegged to the US dollar at the other. So they don’t have to choose one of the two polar positions but can pick an intermediate position. For example, putting some temporary restrictions on cross-border movement of capital could give some but not complete independence of monetary policy. But is there more that central bankers can do to manage the tensions created by this economic divergence? Put another way, how do we reconcile yet another paradoxical couple: independence and co-operation? In my view, we can and should act to enhance co-operation between central banks, based on four building blocks: Mutual predictability of policy making.
The market value of the Fund and its investment returns will therefore swing in tandem with equity and bond prices. This may draw a veil over the progression of the Fund’s underlying earnings. In the long run, it is the Fund’s cash flow that makes a permanent contribution to our national income. The Fund’s cash flow is therefore a good cross-check for measured capital returns. Chart: Cash flow from the GPFG and petroleum revenue spending over the fiscal budget The cash flow presently matches the actual level of petroleum revenue spending over the fiscal budget – of about 3 percent of the Fund’s value. This is reassuring since it implies that the Fund’s capital is not being depleted. Above all we should recognise that future returns on the Fund are uncertain. Ultimately, returns depend on the pace of growth in the world economy and the share of that growth that accrues as value in the companies and bonds in the Fund’s investment portfolio. These variables are uncertain. Growth in the world economy may come to a halt. Governments may default on interest payments. Real properties may fall in value when bubbles burst. To achieve returns, we must take on risk. The Fund features a very long investment horizon and a sizeable capacity to bear short-term risk. If we can exploit these distinctive features when making investment choices, it should be possible to obtain a return in excess of average market return. Shareholders are last in line when company profits are to be distributed.

The US economy in particular is on the road to recovery. Financial market participants see opportunities, not just problems. However, in a number of emerging economies volatile capital flows are creating problems. High debt growth and rising house prices may constitute a risk. The recovery abroad is fragile. The key policy rate is also low in Norway. Our inflation target is slightly higher than that of other European countries. As a result, inflation and nominal interest rates in Norway are also slightly higher. But prospects for a persistently low interest rate level internationally will inevitably also have consequences for Norway. The real interest rate in a small open economy cannot in the long run differ substantially from that of our closest trading partners. Given the prevailing long-term interest rates abroad, it will likely take a number of years for interest rates in Norway to move up towards a level that was previously considered to be normal. When the drafters of the Constitution gathered at Eidsvoll 200 years ago, there were no private banks in Norway. It was not until the latter half of the 1800s that a private banking system truly came into being. Norges Bank acquired its present-day role as lender of last resort. With private banking came banking crises. The 1899 crash in Christiania triggered the first serious banking crisis in Norway. A real estate bubble in the capital burst and house prices plummeted. It took more than 100 years for real house prices in Oslo to return to their pre-crisis level.
Worry over these tendencies increases if one takes into account the fact that future retirements may further limit the labour supply. However, let us leave the discussion of the labour supply and concentrate instead on the productivity aspect. The combination of price stability and budget stability is an important explanation for the development 1 in productivity. Price and budget stability increase households’ and companies’ willingness to make long-term decisions. Stable prices also entail better information value in relative prices, which improves the allocation of resources. If we consider other factors that have stimulated the upturn in productivity in recent years, there are several central changes. One generally seeks explanations in factors such as technological developments, education, competence and incentives among the work force, as well as the allocation of resources in society. At the same time, the pressure on companies to use resources efficiently has increased during the 1990s. Greater competitive pressure resulting from both increased internationalisation and deregulation in various sectors has increased the need for companies to economise their scant resources. Less extravagant use of resources means that the labour force and capital are employed in other areas where they contribute better to the national economy. Although the changeover can be difficult for those who lose their jobs, a better allocation of resources is a necessary condition for improving welfare. Openness is important Productivity is also affected by a country’s capacity to utilise technological progress in other countries.

Eva Srejber: Growth and competition - lessons from the past Speech by Ms Eva Srejber, First Deputy Governor of the Sveriges Riksbank, at Sparbanken Gripen, Båstad, 25 August 2003. *  *  *  Thank you for the invitation to come here and speak on the occasion of Sparbanken Gripen’s 150th anniversary. In my speech today, I intend to attempt to draw some conclusions from the experiences of our economic history during this period. One of my conclusions is that Swedish growth has been stimulated during the periods when we have allowed the market economy to operate under clear and fixed game rules, including a stable framework for both fiscal policy and monetary policy. If these conditions have not existed, we have paid a price in the form of weaker economic growth. This speech does not contain any signals regarding current monetary policy. The past 150 years have been an exciting time, in particular the first part of this period. This was when Sweden changed from being a remote, developing country with a high infant mortality rate, widespread poverty and starvation, into a prominent industrial nation. Around 1850 Sweden entered into a dynamic period of rapid development and change. A wave of liberalisation swept across the country and opened up important markets. GDP growth amounted to more than 2 per cent a year, which was twice as high as the growth rate during the first half of the 19th century.
Svensson has argued in favour of this point of view in several papers and commentaries (for example Svensson 2013a). 12  It is difficult to quantify how much higher unemployment becomes when inflation is low. According to Svensson (2013b), unemployment was on average 0.8 percentage points higher during 1997–2011 than it  6  BIS central bankers’ speeches  But wage formation will probably deteriorate even if the low inflation is entirely anticipated. This is because it is difficult to reduce nominal wages. If inflation is low, it will be more difficult to adjust real wages between different sectors and between the individuals in a company. This could also mean that average real wages increase faster than is justified by the growth in productivity, particularly if the rate of inflation is very low or negative. Both problems in adjusting relative wages and unjustifiably high real wages would lead to a rise in unemployment. Repo rate has a lower bound A low inflation rate can also make it difficult for monetary policy to be sufficiently expansionary. The economy’s real interest rate is comprised of the nominal interest rate minus the (expected) inflation rate. As the nominal interest rate has a natural floor somewhere around zero per cent, a lower (expected) inflation rate will raise the lowest level that can be attained for the real interest rate. After the financial crisis, many central banks have long been limited by the lower bound for their policy rates.13 The problem has, however, not been as acute in Sweden.

Some investors may also have misinterpreted the risk dimensions covered by a rating. Against this background there is probably scope to improve the information content of ratings and to make the monitoring process more transparent. It also needs to be investigated further to what extent conflicts of interest may have arisen for rating agencies in their credit risk assessment of structured credit instruments. Several international fora are currently looking at those issues. Fourth, the turmoil has revealed some challenges for the liquidity management of banks. BIS Review 137/2007  1  Banks, including those in continental Europe, have increasingly relied on secured funding, both via securitisation and off-balance sheet vehicles. This has rendered them more vulnerable to a sudden disruption of structured credit markets. Let me recall that the regulatory framework requires EU banks to have policies and procedures for the measurement and management of net funding positions on an ongoing and forward-looking basis and have in place contingency funding plans. In this context, recent events have demonstrated that banks need to further strengthen their liquidity risk stress-tests, encompassing for example scenarios such as a protracted closure of a broad range of securitisation markets and the drawing of contingent liquidity obligations by commercial paper programmes. Moreover, those elements should also be incorporated into their contingency funding plans. The ECB, together with the ESCB Banking Supervision Committee, is carrying out work on this important topic.
Only when the price went beyond $ per barrel did it truly begin to affect the demand, and from then on the reduced output prospects have continued to determine its price. Inflation-wise, the international scenario is still delicate. After a shock of oil and foodstuff prices that had no parallel since the Great Inflation of the 1970s, inflation has risen everywhere (figure 10). Also, inflation expectations have increased accordingly (figures 11 and 12). In general terms, it has not yet become a generalized inflationary phenomenon but, inasmuch as it is transmitted to expectations and wages, it can be very persistent. Monetary policy reactions to this phenomenon have been varied. In developed economies, where growth prospects are frail, interest rates have been lowered (figure 13). In general, the slowdown is expected to be sufficient to bring down high inflation. On the contrary, in developing economies monetary policy has been on average restrictive. Growth rates are still reasonable, so one cannot rely on a drop in inflation without having to raise the interest rate. World growth is still strong. (figure 14). What is new is the decoupling of developed economies with the rest of the world. Not surprisingly, the entire world is decelerating, but the degree of expansion of output varies significantly. Never in the last half century did we see a period of such decoupling. The phenomenon is not exclusive to China, and has been present for several years already.

José De Gregorio: The tensions of the world economy Speech by Mr José De Gregorio, Governor of the Central Bank of Chile, at the Seminar organized by students of the School of Business Administration of Pontificia Universidad Católica de Chile, and in the Manufacturers Association SOFOFA, Santiago, 24 September 2008. I am thankful to Kevin Cowan, Pablo García and Andrea Tokman for valuable comments. *  *  *  A natural thing to do is to program these presentations some time in advance, not being fully aware of the conditions we will be facing when the time comes. Needless to say, over the past few days I have had to edit many developments into my lecture, as the world economy is making history. Thinking of the global economy’s present situation leads us to focus almost exclusively on the financial crisis, but this is one aspect of more generalized problems and imbalances that have build up over the years. The global economy is going through a severe financial crisis, high inflation and unusual dispersion of growth around the world. Furthermore, this scenario is very uncertain, as we have stated in our last Monetary Policy Report. Today I would like to address the current situation from a broader perspective, not only analyzing the financial crisis but digging more deeply into how we got to the present scenario, exploring its economic policy implications and finding the lessons to be learned from it.