samchain/econo-pairs-v1 huggingface dataset:
The importance that the dynamising effect of the external sector acquires in the current circumstances highlights the relevance of competitiveness in the future. The foreseeable trend of inflation points to increasingly more moderate average price increases during the rest of the year, owing largely to the baseline effects of the energy and processed food price increases late last year and to the recent declines in crude oil prices, provided these are sustained. This trajectory should extend over the coming year, further supported by the sluggishness of demand. However, to attain fuller and more sustainable convergence with the euro area, the upside risks stemming from the indirect and secondround effects of cost and price increases this year must be prevented from materialising. The macroeconomic basis on which the government has drawn up the State Budget for 2009 includes, in its main outline, the trajectory of the macroeconomic adjustment I referred to earlier. But it is subject to major downside risks, especially as regards the course of domestic demand and, in particular, of residential investment. It should further be borne in mind that  BIS Review 122/2008  5  the global economic situation and the impact of the international financial turmoil tend to heighten these risks. The design of the Budget should take into consideration the pronounced change in the economy’s cyclical situation, and bear in mind the speed at which public finances are being affected.

As I was able to explain to you here before the summer, the change in cycle in Spain had started before the episode of financial turmoil, making itself felt mainly in the real estate sector, which set in train a correction of the excesses that had built up during the long expansionary phase. These excesses had largely arisen owing to the global environment of financial laxity and undervaluation of risk, and to monetary and financial conditions that were particularly accommodative for Spain following EMU membership. These conditions were based on interest rates that held at low levels over a very extensive period and which were conducive to rapid indebtedness by households and by firms, mainly those related to the real estate sector. In any event, the adjustment of the real estate sector began slowly, mirroring the gradualism with which the determinants of residential investment changed. Hence, as the change in monetary policy stance that began in late 2005 progressively passed through to household and corporate borrowing costs and as the overpricing of housing became more patent, the dynamism of the sector eased off. However, this gradual pattern was altered when the international financial crisis raised credit risk premiums across the board, blocked a most significant part of banks' wholesale funding mechanisms and spread uncertainty and mistrust, most particularly in respect of economies subject to real estate adjustments. Against this background, the demand for housing fell off  BIS Review 122/2008  3  drastically, when the production of houses was still at a very high volume.
On the plus side, the crucial and unique economic advantage of monetary union is nominal exchange rate certainty within the Eurozone - which takes over half UK exports. I’m not talking just about reasonable exchange rate stability - which might result over time from each country pursuing disciplined macro-economic policies in parallel. I’m talking about nominal exchange rate certainty for the indefinite future. That very real economic advantage is well understood in the UK. It is particularly well understood by those businesses in the UK that export to, or compete with, businesses in the Eurozone, especially given the euro’s unexpected - and puzzlingly persistent - weakness since its inception at the beginning of last year. On that ground alone many of them, who are under intense competitive pressure as a result of sterling’s excessive strength against the euro, though not against other major currencies, would see our joining the single currency as an advantage - provided, of course, the exchange rate at which we joined was fixed at an appropriate level, which most of them - and indeed most analysts looking at the economic fundamentals - think should be substantially lower than at present. At a broader macro-economic level the potential benefit of joining - as a result of greater transparency of costs and prices and lower transaction costs - leading to greater competition and more efficient economic resource allocation is well understood.

Exchange rate certainty within Europe - even though only within Europe, and even though it is nominal exchange rate certainty rather than real exchange rate certainty, which is what matters in terms of competitiveness - would potentially enhance the benefits to be derived from the European Single Market. The euro’s second very powerful advantage is the possibility it opens up for much broader and more liquid financial markets. It will mean a progressive narrowing of spreads between borrowers and lenders, which is good news for the users of those markets - and that will be good news too for financial intermediaries as a group, because it will lead to higher volumes of financial activity. Not every individual intermediary will benefit, of course, in the more competitive environment, but those who survive will thrive! The City of London is already making an important contribution to this process of euro financial market integration. It is in fact the greatest contribution that the UK can make to the success of the 1  BIS Review 71/2000  euro while we remain outside. (It runs alongside the conceptually distinct, but closely related, pressure for broader international integration of financial markets, currently reflected in a spate of initiatives to unify trading platforms, and both clearing mechanisms and settlement systems, in which London, of course, is also very much involved.) These then - nominal exchange rate certainty throughout the Eurozone and integrated euro financial markets - are potentially powerful economic arguments in favour of UK membership.
At the same time, the rising importance of services has impinged on the inflation process. Services prices tend to be more rigid than goods prices because they embody a larger share of labor input, and wages tend to be sticky. This may have contributed to inflation having become more persistent. At the same time, the digital revolution has driven the prices of many modern services, such as telephone calls, news, and entertainment to essentially zero. 4  The upshot is that the link between inflation and domestic measure of economic slack, as traditionally captured in the Phillips curve, has weakened and disappeared altogether in some cases. In terms of growth, slowing global trade and the rise of services implies slower and less capital intensive economic growth. For highly open economies, slowing world trade has undermined export as a growth engine. At the same time, the transition to services has also contributed to the growth headwinds given that modern services is less labor and capital intensive than manufacturing. Think of Google’s 40,000 workforce compared to General Motors’ 800,000. Or the fact that Uber is the world’s largest provider of auto transport without owning any cars. Or that AirBNB is one of the world’s biggest provider of accommodation without owning a single hotel. Given that investment is a relatively interest rate sensitive activity, to the extent that the transition to services has dampened investment, it may have also made the economy less responsive to monetary policy.

The result can be disruption to the financial intermediation function with resulting constraints on the availability of credit for households and businesses. This, in turn, can lead to further reductions in aggregate demand that put additional stress on the weakened financial system. Obviously, this is not a favorable dynamic. Financial instability can impact the conduct of monetary policy via three major channels. First, financial instability can generate a sufficiently large shock to aggregate demand that the central bank may encounter the zero lower bound constraint – the constraint that the monetary policy instrument, for example, the federal funds rate – cannot easily be pushed below zero. In such circumstances, it may not be easy to fully offset the shock through the pursuit of a more stimulative monetary policy. At the zero bound, the central bank is not powerless, and may turn to other monetary policy tools such as forward guidance and large scale asset purchases. But these tools may not be as effective as lowering the short-term rate instrument. In particular, the central bank may not be willing to use these nonconventional tools to the full extent necessary to provide the same degree of stimulus as it would provide if it could set interest rates at negative levels. That might be because of uncertainty about how nonconventional tools will work or because of the potential costs associated with the use of such tools in terms of market functioning and the risks of future financial instability.
Villy Bergström: Monetary policy and wage formation in Sweden Speech by Mr Villy Bergström, Deputy Governor of Sveriges Riksbank, at the HSB Bank’s Finansdag, Stockholm, 13 November 2002. *  *  *  Let me begin by thanking you for the invitation to come to HSB and for giving me the opportunity to discuss wage formation. As you know, the Riksbank's objective is an inflation rate - measured against the annual change in the consumer price index (CPI) - limited to 2 per cent, with a tolerance interval of +/- 1 percentage point. As interest rate decisions affect price pressure, partly through resource utilisation, with a certain time lag, monetary policy needs to be based on the total assessment of the rate of price increase one to two years ahead. Payroll expense accounts for approximately 70 per cent of the total value added in the economy and is thus crucial to the development of costs and prices. Wage formation has also gained increased topicality since the Swedish Municipal Workers' Union decided to terminate its collective wage agreement before the third year. The Riksbank's assessment in the October Inflation Report also pointed to high wage increases as a potential risk factor for domestic inflation. New conditions for wage formation in the 1990s New conditions for wage formation were created at the beginning of the 1990s. Monetary policy became more clearly focussed on maintaining low inflation and tighter fiscal policy was necessary to consolidate public finances.

In general, blue-collar workers' wages have increased more slowly that those of white-collar workers and wages in the local government sector have increased more slowly than those in the private sector, while wages in central government and regional government have developed relatively well. Relative wage changes are perhaps the most difficult wage formation issue in a low inflation economy, as the social partners must be able to manage wage imbalances between different groups' wage situations without generating a wage spiral. Employees do not merely watch real wages, but also their relative wages, which were previously institutionalised with earnings development guarantees built into the agreements. Previously, high inflation facilitated relative wage changes, but in a low inflation regime it is more difficult for a group to raise its wages as it must entail other groups receiving lower nominal rises and perhaps no real increase. At the same time, one must be aware that relative wage changes are a necessary element in a market economy. There is currently a shortage of labour in health and welfare, so from a labour market perspective it is natural that this shortage will be expressed in higher relative wages in these areas. Larger retirement pensions combined with a greater need for care services over a longer period due to demographic developments will aggravate this labour shortage in future.
It needs to be enough to withstand extreme but plausible events for long enough to allow an assessment of whether the firm can be rescued as a going concern – or whether changes in the external world have holed the business model below the water line: no amount of capital can keep a broken business model afloat for ever. Rather, capital is like the bulkheads in the sinking ship: they don’t necessarily need to hold back the water forever, but must slow down its ingress for long enough to get the passengers and crew safely into the lifeboats. How long the defences are needed depends on the design of the ship – where are the lifeboats, are they clearly signposted, how many stairwells are there from the lower decks, and so on. So ease of exit is a crucial factor in capital adequacy too: how confident are we that policyholders can be protected in a worst case scenario, i.e. that if the firm is closed to new business the run off will be a solvent one. Do existing concentrations get worse or new ones arise during run off? Do new liabilities or exposures appear e.g. through higher collateral requirements or even forced close out by derivatives counterparties? The less confident we are that the firm can exit in an orderly way, the more remote we need to make the prospect of failure and the larger the cushion of financial resources we will need to see at the point of intervention.

The bears may have seen their bargain flat pack furniture in a different light when they discovered how easily the chairs were broken by a little girl. Similarly, financial services supplied by undercapitalized firms are poor value as they cannot be relied on. And if policyholders cannot reliably distinguish the sound firms from the others, the whole sector is tainted – to the cost of us all as economic activity that relies on being able to lay off unsupportable risks is depressed. On the other hand, if prices are unnecessarily high that can also reduce or prevent risk transfer, and this can have a knock-on effect on economic activity and long-term investment. There is a balance to be struck. As I said in my opening remarks, I do not believe that we have that balance badly wrong at the moment. I hope that I have convinced you that, like Goldilocks in the more familiar version of the story, regulators do want to get it just right: we aren’t continually hankering after the largest chair, the softest bed, or the hottest porridge. And we are as open to evidence about what constitutes ‘just right’ as we are to how best to correct the distortions introduced by the current design and calibration of specific measures in the regime.
For Phillips Curve to work, the loss of welfare from a negative cumulative real wage gap has to be fully compensated first – as a stock measure, not as a flow. The policy implication from this finding is that, for those countries which have not closed their cumulative real wage gap (most of the developed economies), inflation will remain subdued until they close their cumulative wage gap. Distinguished guests, I would like to thank the organizers, Central Banking, for inviting me to speak about a very topical issue: subdued inflation. Inflation has been subdued in the post-crisis years, and the Phillips Curve has failed to explain it. It is probably the greatest mystery of the economic science in the last decade: where has the Phillips Curve gone? There are multiple references to the fact that the Phillips Curve has flattened over the last decade, if not earlier (to mention just a few: Forder (2014), Leduc and Wilson (2017), Borio (2017), Carney (2017), Cunliffe (2017), Praet (2016, 2018), Spencer (2017), Murphy (2018), Bullard (2018)). The flattened Phillips Curve and the lesser link between inflation and unemployment, inflation and output gaps, or inflation and wages, have multiple explanations.

For each wage adjustment episode in a country, the data sample starts at year T0 (the peak year) and it ends when a new peak is detected (at year T0 new – 1). We apply this only if the cumulative real wage gap has been closed before reaching the new peak. If the cumulative wage gap has not been closed, then we continue to consider the new peak as part of the same adjustment episode. A wage adjustment episode within a larger wage adjustment episode is not considered. This approach prevents data overlapping and it secures research consistency and integrity. In the analysed period, there were three historical episodes of wage adjustments. Data shows that the cumulative real wage gap was closed in all countries which experienced the first wage adjustment episode, with the exception of two countries (Japan and Korea). In the case of the second wage adjustment episode, the cumulative real wage gap has not yet been closed, with the exception of other two countries (Mexico and Latvia). These latter two countries entered a new wage adjustment episode, the third one. For simplicity reasons, the wage adjustment episodes are numbered with reference to the time periods and not to the country-specific episodes. We considered as the first wage adjustment 5  episode any episode which started in the last decade of last century (1990-1999) and the second wage adjustment episode any episode which started after the year 2000.
In first discussing the causes of the turmoil, I shall argue that individual jurisdictions, no matter how sound their economic fundamentals, no matter how effective their financial management, are finding it more and more difficult to cope on their own with an increasingly global and volatile financial system. And I shall sketch out Hong Kong’s recent experience as a striking illustration of this problem. I shall then focus on what I see as the solutions to the crisis, emphasising that they should not simply address current problems: they should also aim at fostering the conditions that will help to minimize the extreme volatility that we have seen in our region over the last eighteen months. The causes of the turmoil Poring over the various commentaries week after week, and matching them against the initiatives that are being taken within the region and beyond, I have been struck by the way in which changing perceptions of the causes of the crisis have had an important influence on the solutions that are put forward. Over the last eighteen months the description of the problem has moved from being local to regional to international. As our own regional turmoil, in combination with other crises elsewhere in the world, threatens the stability of the whole global financial system, the focus is more and more on finding international solutions rather than on merely writing out prescriptions for individual economies.

The current turmoil has interrupted some of this progress, and has reminded us that rapid economic expansion is not without its risks. The damage to some economies has been severe. But the foundations remain strong, and the prospects for the next half-century are, in my view, favourable ones. The signs of economic revival are already with us. Recovery may be a BIS Review 2/1999  – 10 –  longer and more difficult process than some of us had expected a year or more ago. But there is no doubt that it will come. It is now up to us, as partners in this large and diverse region, to seize the initiative, and turn that recovery into an enterprise that will make us stronger, more cohesive, and more capable of managing the stresses and uncertainties that a global financial system must inevitably produce. *  BIS Review 2/1999  *  *
The extreme example is of course the collapse of communism but the global spread of privatisation, for example, is part of the same phenomenon. This change may have less to do with a sudden dramatic shift in philosophical conviction than with a broadly-based, pragmatic, recognition that the incentives of private ownership within a market economy make for greater productive efficiency and greater sensitivity to changing consumer demands. In other words, whether we like it or not, the market economy is seen as the most effective mechanism we have for allocating scarce resources to where they can be most productively employed in meeting the needs of consumers as a whole - and in that sense raising the underlying productive potential of the economy. But of course that presumption is not absolute. No one questions the role of government in meeting the collective needs of society as a whole, in relation to defence or law and order, for example, or in providing public heath and education services or social security protection. Nor do many people seriously question the need to constrain purely free market behaviour through some degree of regulation of employment practices, health and safety standards, or competition or consumer protection law. The debate is about questions of degree. All forms of government intervention involve costs - direct expenditures have to be paid for through taxation and the costs of complying with regulation are born directly by the private sector, which is why of course we hear so much about “red tape”.

The net effect of particular forms of intervention may enhance the capacity of the private sector to create wealth and employment - I imagine that most people would generally regard public health and education services, for example, in this way, or forms of regulation that enable markets to function more effectively. But even then there are questions of degree. And other forms of intervention may be more likely to reduce the wealth-creating capacity of the private sector by, for example, blunting incentives either to provide or to take up employment. That is not, of course, to say that they are in any sense necessarily wrong, merely to point out that here again choices to be made, the difficulty often being to know where to strike the balance between conflicting objectives. The question of relieving poverty needs to be addressed within this framework. Our social conscience may say that we should lean more towards redistribution in favour of the poorer sectors of our community generally, or in favour of those who are particularly disadvantaged in one way or another and goodness knows there are endless causes that in themselves are worthy of our collective support. 3  BIS Review 110/2000  But it is important to recognise that in doing so, we could reduce the wealth and income generating capacity of the economy as a whole, and so reduce our ability to provide rising living standards to all sectors of society, including rising absolute living standards of the poorer sectors we were seeking to help.