samchain/econo-pairs-v1 huggingface dataset:
Before I discuss Norges Bank’s suite of models in greater detail, I would like to look at a few key macroeconomic variables and their interaction. Studying fundamental statistical relationships provides important insight into the functioning of the economy. Along with the theoretical foundation, such insight is one of the most important building blocks of a good analytical apparatus for implementing monetary policy. Chart: Output and inflation Let me begin by taking a look at the relationship between output and inflation. In recent years, consumer price inflation (CPI) has fluctuated between 0 and 3 per cent. Mainland GDP growth has also fluctuated, giving rise to economic cycles. The chart shows developments in the two variables measured as deviations from long-term trend growth, in other words an “inflation gap” and an “output gap”3. The blue line in the chart shows that GDP growth was markedly higher than trend growth in the latter half of the 1990s and in the period from 2003 to 2008, but that it has risen somewhat more slowly in the period following the financial crisis. When developments in output are compared with inflation, a pattern emerges. A pickup in GDP growth has consistently occurred 4–5 quarters before a rise in inflation4. While the chart says nothing about causality, turning points in GDP growth seem to be a fairly reliable leading indicator of turning points in inflation.

Norges Bank has developed the Norwegian Economy Model (NEMO), which we use as an aid when drawing up one-yearahead to four-year-ahead forecasts. NEMO is a model for analysing cyclical fluctuations around a long-term trend. In the medium term, the economy may in periods deviate substantially from trend, but when the fluctuations subside, we must assume that the economy is moving towards equilibrium. The model does not explain the long-term trend so we have to look to other economic theory. For example, economic growth over time will be determined by technological developments and the supply of labour and capital, and there will likely be a relationship between the real interest rate and potential growth. When we set the interest rate, we give weight to the current situation and the outlook two to three years ahead. The statistical models help us understand the current situation, while the equilibrium properties frame the analysis. NEMO describes how the interest rate can be set to bring the economy from its current starting point back to the long-term equilibrium path. As a support tool in making monetary policy decisions, such a model apparatus is thus particularly relevant. I will come back to the main features of NEMO later. Chart: Monetary policy model requirements Norges Bank operates under a formal monetary policy mandate. The Bank’s objective is to stabilise inflation and provide the economy with a nominal anchor.
One interesting question to ask is how large the scope is for lower Swedish food prices in the future. Current theory has it that the prices of identical products should be the same regardless of country or region if transportation costs and other trade barriers are excluded. According to the theory, price differences lead to cross-border trade and eventually to equal prices. Food prices in Sweden are substantially higher than the EU average, and large regional differences exist in Sweden. One possible way to investigate the scope for price cuts would be to take as a starting point the difference in Swedish food prices in relation to the prices of other countries and adjust for the other factors that affect the prices and that are different between the countries. Alternatively, one can look at the regional differences in food prices in Sweden. Last year, Eurostat published two price comparisons, the first in cooperation with the OECD in order to measure purchasing power in different countries, while the second investigated price levels in capital cities. According to these surveys, Swedish food prices are 17 per cent above the average for the EU15, and 16 and 19 per cent, respectively, above those in Germany and the UK, while Stockholm’s food price level is some 14 per cent above the average for the EU15, and 17 and 18 per cent, respectively, above the level in Berlin and London. 4  4  Source: Gfk.

Globalisation raises the demands on flexibility Globalisation means ”the growing mutual dependence between countries around the world through the increasing volumes and amounts of cross-border transactions in goods, services and capital flows”.1 This process has intensified in recent years, partly reflected in a sharp pick-up in world trade, an even faster increase in direct investment and a very steep rise in global equity and currency trade. Globalisation has given rise to rapid structural change, resulting in jobs being shed in certain sectors or being relocated to countries with lower production costs. Sweden has, for a long time, experienced fast structural change, which contributed to the strong economic performance in the 1990s. Less than 100 years ago, around half of Sweden’s employed worked in agriculture and forestry; today, that figure is only 2 per cent. Over the same period, the proportion of the employed in the services sector has risen from roughly 20 per cent to 75 per cent, at the same time as the proportion in manufacturing increased at first from about 30 per cent to just over 40 per cent and then fell to 20 per cent. Among other things, we saw during the 1960s and 1970s that large parts of Swedish manufacturing, in the shape of the textile and shipbuilding industries, were outsourced from Sweden.
Resolution is the toughest nut to crack in the financial reform package, but it is also the one that I think does more to unlock other issues, including the appropriate steady-state endpoint for the bank capital regime. Put simply, the answer in my view is different in a world of effective resolution that ends too big to fail. But in the alternative outcome, where too big to fail remains with us and there are doubts around the effectiveness of resolution, it is hard to avoid the conclusion that higher capital requirements will follow, and cross-border establishment will be through subsidiaries. Let me also say that we have made more progress on resolution in the last few years than many people expected. To say that we are not there yet should not conceal the real progress made. And, an important credit on this goes to Paul Tucker who has led much of the international policy thinking on resolution. Paul leaves us at the end of the week for the calmer environment of Harvard – we shall miss him in many ways, and I hope that when we get to an outcome on bank resolution that meets our wish to reject the permanence of fragmentation, we will remember how much Paul did to get us there.

Andrew Bailey: Regulating international banks Speech by Mr Andrew Bailey, Deputy Governor of Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority at the Bank of England, at the British Bankers Association Annual International Banking Conference, London, 17 October 2013. *  *  *  Today is the BBA’s annual international banking conference, and I therefore want to stick to that theme and explain the PRA’s thinking on issues concerning the pressures on international banking business and the establishment and supervision of foreign bank branches in London. Let me start with the luxury of a wider reflection. Before I joined the Bank of England over 28 years ago, I was an economic historian, with a specialism in nineteenth century economic history. All a bit esoteric you might say. Well, it is the case that the late nineteenth century world economy was more open – and, to use a phrase I don’t much like, “more globalised” – than at any time in at least the first fifty years of the twentieth century. Moreover, the rate of openness in the world economy probably only truly approached late nineteenth century levels in the last twenty or thirty years. The backlash to greater openness that came in the first half of the twentieth century is quite often attributed to the actual or perceived distributional effects of greater cross-border trade, flows of capital and flows of people. The world economy in many ways went backwards in the first half of the last century.
The work on oversight and crisis management The Riksbank presents its analysis of system stability every six months in the Financial Stability Report. The Report basically aims to provide a picture of the Swedish banks’ ability to stand up to any disruptions. The purpose is to identify conceivable risks and present a sound analysis that influences the market’s participants. The task of the Riksbank can perhaps be described as to keep cool and restrain undue optimism when there seem to be no problems in an upward phase, and to fill in the picture, if necessary, in a downward phase to allay concern about serious loan losses. The analysis concentrates on the four major Swedish banks because their size makes it likely that they are relevant for system stability. The failure of one of these banks might jeopardise stability, though this is by no means certain. The durability of the banks is dependent on a number of factors. The Riksbank analyses the main categories of borrower, developments in the bank groups and the financial infrastructure. Borrowers are analysed in terms of the corporate and household sectors in general, with particular reference to levels of debt and the future ability to pay. The real-estate sector is considered separately because the companies here account for as much as one-third of the banks’ corporate lending. The prices of commercial properties and private housing are also analysed because they reflect the value of the collateral that is pledged for loans from banks and mortgage institutions.

The work on financial stability is undertaken in three main ways. One concerns the rules and regulations that set the bounds for the operations of financial companies. Another is the continuous surveillance of the system that is performed by Finansinspektionen (Sweden’s Financial Supervisory Authority) as well as by the Riksbank. Thirdly, the state needs to be able to manage any crises that nevertheless occur. The work on stability calls for highly developed cooperation between the Finance Ministry, Finansinspektionen and the Riksbank. The laws governing financial operations are enacted by the Riksdag, with the finance ministry as an important agent. More detailed regulations are issued by Finansinspektionen, which also monitors their observance. The Riksbank’s contribution to the work on rules and regulations consists in the first place of submitting opinions; in addition, the Bank participates in international efforts to develop the regulatory framework. The role of the Riksbank in surveillance work is central and focuses on the functioning of the financial system as a whole and the risks that may arise. The identification of risks in the system as a whole means, moreover, that the individual institutions and the financial infrastructure have to be scrutinised. It is primarily Finansinspektionen but to some extent also the Riksbank that need to keep a continuous eye on the individual banks. Due to the central functions of the banks, a crisis in the banking system might swiftly have serious consequences for the payment system as well as for the supply of credit.
45 We should also bear in mind that the current situation is highly unusual. We must not fall into the trap of believing that the innovative policy measures being taken now in response to these unusual conditions represent the basis for a new paradigm in the future. 46 I suspect that when the dust has settled and more normal conditions return, monetary policy regimes will not look drastically different from pre-Crisis days. •  I think more central banks will have an eye to financial stability considerations – at least informally – when setting monetary policy. •  More central banks are also likely to have macroprudential policy toolkits at their disposal, which they will use from time to time but perhaps not on the scale that has been used in Asia in recent years. •  But in essence, monetary policy will remain largely focused on price and output stability – as it should be. 47 Perhaps as T S Eliot puts it, the end of all our exploring is to arrive where we started and know the place for the first time. 48  I wish you a successful conference. Thank you. References Bank for International Settlements (2010), “An assessment of the long-term economic impact of stronger capital and liquidity requirements”, Basel Committee of Banking Supervision. Borio, C and Zhu, H (2012) “Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?” Journal of Financial Stability, Vol. 8(4), pp. 236–251.

M R Pridiyathorn Devakula: Risk management - Challenge for the Thai financial institutions and regulator Opening remark by Mr M R Pridiyathorn Devakula, Governor of the Bank of Thailand, at the Market Risk Management Techniques for the BIS Capital Regime Seminar, held in Bangkok, 12 October 2001. *  *  *  Distinguished guests, Ladies and gentlemen, I would like to personally extend a warm welcome and to express our deep appreciation to all of our distinguished speakers and panelists who have agreed to come to Bangkok at this difficult time. I would also like to thank our co-host, the World Bank, in the efforts and interest which they have shown to make this important seminar possible. It is also important to convey my appreciation to the members of the financial industry for your interest and enthusiastic participation in this seminar. As we all know, the New Accord Proposal is scheduled to be finalized early next year, with its implementation scheduled for 2005. Countries that have not yet implemented the consolidated supervision will have until 2008 to comply with the New Accord. Thailand is in this second category since we have yet to be empowered by law to carry out consolidated supervision. The new Banking Act with such a provision is expected to take effect next year. Even with such a relatively long grace period toward compliance, Thai financial institutions have already taken the first step of the journey toward that direction.
In the last couple of decades, the dynamics of the external balance sheet of the region, examined through the net international investment position, pointed towards a process of significant widening of the negative gap, in the run up to the global financial crisis. Although, this trend to some extent slowed, IIP reached its peak in 2012 and with the beginning of 2013 taper tantrum episode started to reverse. Despite the reversal, on average it is still above the some of the benchmarks, such as the norm of the EC within the macroeconomic imbalances procedure, that equals -35% of GDP. 12  Chart 9 Net International Investment Position  Source: IMF BOP data. In order to have the complete picture, more granular view is important, as it can reveal whether the pre-crisis mode of the rising financial exposure elevated the external vulnerability of the region, and hence whether the adjustment which followed was more abrupt and costly in economic terms. For instance, the larger weight of direct investment (including the intercompany lending) should in principle improve the external risk profile of the country, as the probability for sudden reversal is low, and in general it does not yield future financing requirements for repayment of the obligations due. This is not the case with portfolio investments, or the other investments, as debt creating flows, where the risk is higher, both in terms of sudden reversals and rising future payment burden.

BIS Review 76/2009  11  Figure 9 Durable goods sales (index, average January 1996 - April 2009=100) 230  230  190  190  150  150  110  110  70  70  30  30  96  97  98  99  00  01  02  03  New automobiles' sales (units)  04  05  06  07  08  09  Capital goods imports (nominal)  Sources: Asociación Nacional Automotriz de Chile (ANAC) and Central Bank of Chile. Figure 10 Economic perception  (diffusion indexes, percent) Business confidence (1)  Consumers' confidence (2)  70  140  120  60  60  120  100  50  50  100  80  40  40  80  60  30  30  60  40  20  20  40  20  10  07 Brazil U.S. Japan  Jul. 08  China Mexico Eurozone  Jul. 09 S. Korea  07 Brazil China U.S. Mexico  Jul. 08  Jul. 09  S. Korea Japan Eurozone  (1) S. Korea is anchored in 100. (2) Series of Japan, Eurozone and S. Korea anchored in 50. The rest of the series are indexes with base January 2007=100. Source: Bloomberg. 12  BIS Review 76/2009  Figure 11 Stock market indicators (*) (Index 01/03/2005 =100) 400  Subprime crisis erupts  350  Bear Stearns  400  Lehman, AIG, etc.
And as we increase our physical presence in Leeds you are perfectly positioned to join us. Conclusion Let me briefly conclude. Monetary and financial stability are complementary, representing two sides of the same coin. How they interact is complex. And recent years have presented challenges for both objectives. Having two separate and focused committees with overlapping membership has worked well. And these complex interactions have been managed through: shared analysis; policy action to build resilience in advance of potential stress; and targeted, differentiated operations when needed, all supported by focus and accountability for our distinct remits. While we don’t yet know how long higher interest rates will persist, it’s clear that the FPC will need to continue to be alive to potential financial stability consequences, not least given known vulnerabilities in market-based finance. It’s also clear that there is an ambitious agenda for research to support us in our task. Luckily we have a great pool of diverse talent to draw on in the future, some of it in this room today. Can I encourage you to join us and so to make this ‘modern central bank’ even better. I’d like to thank Benjamin King for his assistance in drafting these remarks. I would also like to thank Renée Horrell, Matthew Waldron, Chiara Punzo, Niki Anderson, Andrew Bailey, Kristina Bluwstein, Fabrizio Cadamagnani, Geoff Coppins, Lee Foulger, Andrew Hauser, Grellan McGrath, Huw Pill, Nyssa Roberts, Martin Seneca, Sophie Stone, Danny Walker and Chris Yeates for their  Page 11  helpful input and comments.

The cross-border production and supply-chain networks, which have been so efficient in raising Asia’s exports to the rest of the world, remains valuable but will have to be increasingly re-orientated towards raising domestic and intraAsian consumption of final goods and services. Measures to encourage new investments in the corporate sector and in public infrastructure, as well as in education and healthcare, will be necessary for most Asian emerging economies in order to realize their growth potential. The basic outline of changes is well understood, but crafting the details of these changes, and calibrating the pace of implementation, will need thoughtful work. The build up of domestic demand would probably be a gradual process, as experiences of Japan and Germany suggest that reducing a nation’s export dependence involves major structural changes that evolve over an extended period of time. Nevertheless, I am optimistic that Asia will be able to respond to these challenges, to achieve its longer term growth potential and contribute towards more sustainable global growth. Financial regulations and development Let me now turn to the third set of challenges: financial regulations and development. Financial authorities are now working intensely in various fora, such as the Financial Stability  2  BIS Review 133/2009  Board and Basel Committee, on regulatory reforms and cross-border cooperation.
Empirical studies of the Bank of Albania show that the cease of these flows would put our consumption model and the long-term balance of the external sector of the economy in the difficult position. Our concern related to the household budget stands in the fact that the behaviour model we adopt at a household level can also affect the behaviour model of given regions. The Albanian economy has by and large made evident progress, detaching itself from the IDA country group. Macroeconomic indicators have for a relatively long period been positive and stable. However, beyond the nationwide average indicators, detailed statistics by regions indicate that welfare in mountain areas has progressed at slower rates relative to the other regions. According to World Bank assessments, an average resident in the mountain area has 12% less per capita real consumption than the average resident in Tirana, while in 2002 this figure was 9%. According to the same source, the average rural coast resident has 34% higher per capita consumption than the average mountain rural resident. Generally, poverty has a strong positive relation with the family size and a negative relation with age and education. In contrast, the District of Kukës has great potentials for more prosperity in this area. First, your district is distinguished for its rare natural beauty and diversity from the mountain and ethnographic tourism viewpoint.

If you invest in either of these, you are not promised all of your investment back, though of course you expect to make a positive return. Such an investor ordinarily expects the full return of their investment, but this is not assured. Investment in debt and equity can of course be managed on a collective basis, as asset management. You may remember the Woody Allen quote that a stockbroker is someone “who invests your money until it’s all gone”. Cruel I know, but it illustrates the difference between deposits, other forms of debt and equity. A distinguishing feature of banks is that by providing deposit contracts, far more of their liabilities take the form of value certain contracts. This alone makes capital and solvency critical for banks. In contrast, for asset managers, the contract does not promise such value certainty. Two particular conditions need to be met in my view to make asset management effective and robust to wider economic conditions. First, that there is no lack of clarity of the nature of the assets held under management. Second, that there is no illusion give to investors about  1  Anat Admati and Martin Hellwig: “The Bankers New Clothes: What’s wrong with Banking and what to do about it”. P38–40  BIS central bankers’ speeches  1  liquidity of their assets. It follows therefore that capital and solvency matter much more for bank supervision, and market liquidity conditions matter more for asset management supervision. So bank capital matters a lot.