samchain/econo-pairs-v1 huggingface dataset:
This means that the scope for manoeuvre in monetary policy should be used if the outlook for the economy changes.” In the 1950s and 1960s, a strong belief evolved that the economy could be controlled and steered in the desired direction. This optimistic view gradually lost favour in the face of developments. The way in which economic policy is oriented today reflects the experience gained and the lessons learned in the 1970s and 1980s.3 Economic policy at that time was marked by coordination, control and regulation. Important elements were: •  fiscal policy oriented towards full employment  1  See Jahn, Gunnar, Alf Eriksen and Preben Munthe (1966): Norges Bank gjennom 150 år (A history of Norges Bank). In Norwegian only. Norges Bank’s Printing Works, Oslo. 2  Cf. Report No. 1 (2003-2004) to the Storting, National Budget for 2004. Ministry of Finance, Oslo. 3  Hermod Skånland is in the process of completing “Doktriner og økonomisk politikk” (Doctrines and economic policy), which provides a very interesting discussion of post-war economic policy.

This alternative for Norway was discussed in 1997 at the initiative of Norges Bank.10 Many countries had already gained many years’ experience in operating such a system. New Zealand was the first in line towards the end of the 1980s. Canada followed shortly thereafter. In New Zealand, the switch to inflation targeting was one component of a comprehensive public sector reform aimed at addressing incentive problems associated with economic policy. Canada, which is one of the industrial countries with the most experience of floating exchange rates, had been seeking a nominal anchor for some time. Towards the end of the 1980s, the central bank’s communication increasingly emphasised price stability as a monetary policy objective. An inflation target was officially introduced at the initiative of the finance ministry and in a joint statement issued by the central bank and the finance ministry.11 Sweden introduced an inflation target in December 1992, inspired to some extent by the experience of Canada and New Zealand. After the deep economic crisis at the beginning of the 1990s, reverting to a fixed exchange rate policy was no longer deemed realistic. In this context, it must be added that the central bank of Sweden, when it was seeking to motivate and firmly establish inflation targeting during the 1990s, was able to draw on its own experience from the 1930s. Admittedly, Sweden did not have an inflation target but a price target for monetary policy in the period 1931-1937.
Ces critiques avaient tort sur l’inopportunité de l’euro mais ils avaient raison s’agissant du diagnostic sur les maux qui affligent l’économie européenne. L’euro, loin d’entraver les réformes structurelles, sera complémentaire de celles-ci. La monnaie unique facilitera les mouvements de biens, de services et de capitaux au sein de la zone euro, mais elle encouragera également la “ fertilisation croisée ” des meilleures pratiques grâce au renforcement de la coordination entre les politiques des États membres dans des domaines tels que : marchés du travail, enseignement et formation, incitations au travail et à la création d’emplois, meilleure efficacité des systèmes de protection sociale etc. - En quatrième lieu, tous les responsables économiques d’Europe doivent être lucides sur la question cruciale de la compétitivité. La politique économique de la période antérieure à l’introduction de l’euro consistait à surveiller la balance commerciale, la balance des paiements, les marchés de change et de taux. Les gouvernements recevaient ainsi en retour des informations constantes sur les principaux indicateurs de l’évolution de l’économie nationale et pouvaient agir en conséquence. Avec l’avènement de l’euro, ces indicateurs ont pour la plupart disparu au niveau national, mais ils subsistent naturellement au niveau de la zone euro. D’où l’importance des dispositions du Traité sur la coordination des politiques budgétaires et des politiques économiques. Néanmoins, les règles de l’économie de marché continuent de s’appliquer à chacune des économies. Les consommateurs créent des emplois lorsqu’ils choisissent les biens et services qu’ils estiment présenter le meilleur rapport qualité/prix.

Madis Müller: New models in Northern Europe? Speech by Mr Madis Müller, Deputy Governor of the Bank of Estonia (Eesti Pank), at a symposium organised by the Konrad-Adenauer-Stiftung, Berlin, 28 November 2012. *  *  *  Ladies and gentlemen, Thank you for this excellent opportunity to discuss together with colleagues from Latvia and Lithuania the experience of the three Baltic countries during the financial crisis. While the situation of each country is undoubtedly different, we can still consider if there are any lessons one could learn from the Baltic cases. In my opening comments, I would like to address specifically the question of what is the best pace for economic adjustments once a country has been hit by a crisis. We hear today many suggestions that austerity requirements have gone too far and that we should allow more time for implementing difficult reforms. First, let me start by saying that in more open economies, the crisis was felt almost instantly. In small and open countries such as the Baltic countries, there was no domestic demand to substitute for the lost export income. The economic reality had changed very suddenly. The EU countries could be divided into two groups. The countries that had a higher export dependence had to react fast to the changed economic environment. This applies especially to smaller countries, including the Baltic States, although Germany’s economy is also heavily reliant on exports.
Although this crisis in economics is a threat for some, for others it is an opportunity – an opportunity to make a great leap forward, as Keynes did in the 1930s. For the students in this room, there is the chance to rethink economics with as clean a sheet of paper as you are ever likely to find. That is perhaps why the numbers of students applying to study economics has shot up over recent years. This is one of the silver linings of the crisis. No discipline could ask for a better endowment. But seizing this opportunity requires a re-examination of the contours of economics and an exploration of some new pathways. That is what I wish to do in this lecture, drawing liberally on the work of George Shackle. In the light of the crisis, there has been renewed interest in Shackle’s work as economists have sought new insights into age-old problems. Indeed, it was this quest that first brought Shackle’s work to my own attention around five years ago. In exploring new pathways, I will draw my inspiration from three features of economic systems which underpinned Shackle’s own work. First is the importance of recognising that these systems may often find themselves in a state of near-continuous disequilibrium. Indeed, even the notion of an equilibrium, stationary through time, may itself be misleading (Shackle (1972)). It was perhaps this feature of Shackle’s work that earned him his heterodox label. Second is the importance of looking at economic systems through a cross-disciplinary lens.

1  Mainstream finance and macroeconomics has, then, followed firmly in the footsteps of giants, part Popperian, part Newtonian. It has been heavily indebted, intellectually, to Classical physics. That has led some to dub the dominant economic paradigm “econo-physics” (Mirowski (1989)). Less kindly, some have described economics as suffering from physics-envy. Assessing the Pros and Cons  Despite recent criticism, which has come thick and fast, it is important not to overlook the benefits from having followed this path. One benefit, shared with theoretical physics, is that economic theory has well-defined foundations. There are fewer “free”, or undefined, parameters floating around the model. Nobel 2  Laureate Robert Lucas said “beware of economists bearing free parameters”. He was right. A theory of everything is a theory of nothing. The advantages do not stop there. On the assumption agents’ behaviour is representative – it broadly mirrors the average person’s – these models of micro-level behaviour can be simply-summed to replicate macro-economic behaviour. The individual is, in effect, a shrunken replica of the economy as a whole. These macro-economic models are, in the jargon, micro-founded – that is, constructed bottom-up from optimising, micro-economic foundations. These advantages carry across into the policy sphere. If the assumptions underlying these models are valid, then the behavioural rules from which they are derived will be unaffected by changes in the prevailing policy regime. These models are then a robust test-bed for policy analysis. They are, in economists’ jargon, immune to the Lucas critique (Lucas (1976)).
This applies both to the European and the domestic spheres. The surveillance framework operating at the European level was mostly focused on the fulfilment of the fiscal targets embodied in the Stability and Growth Pact. However, this framework revealed itself insufficient and ultimately ineffective, both because it relied on nominal deficit thresholds – which masked fiscal vulnerabilities under the umbrella of a large cyclical increase in revenues- and because it was loosely applied. In several Euro area countries, Spain among them, the structural policies that could have set the basis for a more lasting and sustainable growth path were timid in a period when the economy was supported by a favourable environment. This is not, by the way, a European peculiarity: as we all know, structural policies tend to be implemented out of necessity, that is, not in the good, but in the difficult times. However, the narrative of the financial crisis in Spain somewhat differs from other developed countries. Our financial system was not exposed to the complex structured assets which were at the root of the financial crisis in 2007-2008. But, while we did not hold this kind of toxic assets, we have suffered the toxification of the housing sector assets as the crisis deepened. The freezing of the global financing markets that started in mid-2007 also disrupted our financing patterns (heavily dependent, as I have said, on external funds directed towards the housing sector).

In fact, public accounts kept improving, so that fiscal surpluses, of around 2% of GDP, were achieved in the years previous to the crisis. But the temporary nature of those revenues and the underlying fragility of the fiscal situation became evident when the housing sector started to adjust. As a result of this adjustment and the depth of the crisis, the surpluses have turned into large and persistent deficits, reaching –11% in 2009, a shift of more than 13 percentage points of GDP in just two years. Could this build-up of imbalances have been avoided or mitigated? With hindsight, no doubt it could, but the economic and policy incentives were not there at the right time. On the one hand, financial markets failed to provide enough ex-ante market discipline: European and global investors were eager to finance countries with higher expected short term returns, dismissing underlying vulnerabilities. Investors tend to ride the waves of sentiment, reacting only – but dramatically – when weaknesses become evident. In this way, they act procyclically, inducing large swings in capital flows. Our Latin American colleagues are acquainted with these experiences, because they have suffered this type of “sudden stops” several times over the last decades. On the other hand, economic policies did not respond adequately to the underlying dangers. In a context of apparent economic and financial stability, and with the European project sailing in full swing, complacency was difficult to avoid, and there was little incentive to address – or even assess – underlying problems.
High oil prices and low interest rates abroad have curbed the effect on the krone of the fall in Norwegian interest rates. The krone has stabilised - though at a high level considering the inflation outlook. Consumer price inflation in Norway declined sharply through 2003. A number of factors appear to have contributed to the decline. •  The appreciation of the krone through 2002 contributed to a low rise in prices for imported goods. •  At the same time, a change in trade patterns and external economic conditions have resulted in an unexpectedly sharp fall in import prices, even when measured in terms of what Norwegian importers pay in foreign currency. The change in trade patterns has made a considerable contribution to the sharp decline in prices for clothing, footwear and audiovisual equipment. Rapid technological advances have also pushed down prices for audiovisual equipment. •  Intensified competition in retail trade and other service sectors. Lower prices for imported consumer goods were an important reason for the low rate of inflation recorded in 2003. So far in 2004, services where wages are not the dominant factor have made the most substantial contribution to low prices. House rents have also exerted downward pressure on inflation. Norway is not the only country where inflation has been low. In Sweden, underlying inflation has fallen sharply. Excluding energy prices, underlying inflation stands at 0.7 per cent. Inflation has also slowed in Finland and Denmark.

The cost of building brick-and-mortar branches to outreach to rural users is high. Hence, the Bank developed the agent banking initiative to leverage on technology and deliver financial services to the rural groups in a low cost and scalable manner. It saves cost and the impact is enormous. Under the agent banking initiative, licensed financial institutions provide financial services to customers through third-party agents, such as retail outlets and post offices. Agents perform banking transactions such as deposit and withdrawal of funds in a safe manner using real time terminal technology i.e. Point-of-Sale (POS). Putting in place a mechanism to monitor performance is crucial to determine whether policy initiatives are effective. Just to give a flavour of what we have done, we actively track the coordinates of agent banks to ensure that access is provided to sub-districts in need of financial access points. Since its implementation in 2012, 95% of sub-districts now have at least one financial access point, a significant increase from 2011. As at August 2013, there were 5,661 agents and the total number of transactions has exceeded 25 million, with a total value of RM2.8 billion. Fourth, Islamic finance can play a huge role in financial inclusion given the strong parallels between the two The concept of financial inclusion – to develop a prosperous, egalitarian economy that contributes towards social development and social justice – is very much in line with the core principles of the Islamic economy, which place great emphasis on social justice, inclusive growth and equitable distribution of resources.
In the July report we describe a potential scenario in Sweden if house prices were to fall at the same time as indebtedness is high.3 Experiences from other countries show that this would probably mean that households increase their savings and reduce their consumption, which would subdue demand in the economy and push up unemployment. The effects on GDP and unemployment may therefore be both substantial and long lasting. Relevant examples here are Spain and Denmark. Experiences also show that the higher households’ debts are, the greater the negative consequences will be of a fall in housing prices.4 At the same time, there would probably be long-lasting difficulties in attaining the inflation target, as the uncertainty over future inflation increases significantly. Conducting a flexible inflation-targeting policy in this context involves taking into account the risk of a crisis occurring by balancing the effects within the normal forecast period against the long-term risks I described. There is of course considerable scope here for different assessments, for instance, to what extent monetary policy affects the probability of a crisis, as well as how a crisis scenario would play out. These are difficult monetary policy deliberations without easy answers. As Sweden is a small country with its own currency and strongly dependent on other countries, it is particularly important that we do not create  2  See, for instance, M. Schularick and A.M. Taylor (2012), “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008”, American Economic Review 102, pp. 1029–61.

Personally, I think the decision was a reasonable balance as it means that inflation will attain the target in around two years’ time, while we take into consideration the risks linked to the high level of household debt. One important issue that I would like to discuss in greater depth today is how monetary policy takes into account household debt and what important role the emerging macroprudential policy can play. Macroprudential policy is more suitable than monetary policy for managing financial imbalances, such as a high build-up of debt in the household sector, and it is therefore essential that it is implemented as soon as possible. Well-balanced monetary policy in July At the most recent monetary policy meeting in July we noted that growth would be weaker than normal this year, both in Sweden and abroad. However, developments in the Swedish economy were divided. At the same time as the household sector looked strong and consumption was growing, companies were being affected by the weak demand abroad, which was leading to lower export and investment. Moreover, the inflation rate was still low. But our assessment at the meeting was that there were signs that the recovery in Sweden and abroad was gradually strengthening. Uneven but gradually strengthening recovery abroad Economic prospects have for some time now looked different in different parts of the world, but on the whole our assessment in July was that economic activity would gradually improve in the coming period.
I think we have a significant role to play in-terms of capacity building not just in the banking sector, but in several other sectors that are vital to the economy. That is the challenge that all of you have to remember and try and participate. I myself, when I worked in these institutions few decades ago, the Ministry of Industries, in the Treasury, it was a very enriching experience personally. But at the same time, I carried over the expertise I had picked up in the Central Bank and enriched those institutions as well. So that tradition should continue and I think it is incumbent on the central bank to really use our manpower. All of you are a concentrated pool of brainpower in this country. I do not think any other institution has so many qualified individuals. We have engineers, we have people from all sorts of fields, not just economics, in this institution, and we have to really build on those skill sets. One of the plans I have, which I am discussing with the DGs, AGs, is to try and deepen our skill sets. We have to identify specific skill sets which are necessary for the central bank in the first instance, and also for the broader nation and to try and deepen those skill sets in a conscious basis so that our manpower development, what you call the improvement of our human capital becomes much more entrenched and becomes much more integrated interms of the national economic developmental effort.

But we have to be part of that, we have the head start in-terms of human capital. I have travelled this region intensively and nowhere have I found the quality of manpower that you have in Sri Lanka. When I used to go Pakistan ten years ago, all my clients used to tell me that their teachers used to be from Ceylon. We are very famous for our teachers, even in Singapore and all these regional countries, Ceylonese teachers used to go and teach in the 1960s and teach their children how to speak, read and write in English and they have very fond memories of this. This shows how ahead of the curve, Ceylon, as it was then known was in-terms of grooming and teaching people basic skills. For instance, most of the senior doctors in Singapore were Ceylonese who went across, including people in the judicial sector. The current Finance Minister of Singapore is Tharman Shanmugaratnam and his father was a Sri Lankan from Jaffna who went across and is still a member of the Medical Faculty in the Singapore University. So we have a head start in-terms of human capital. All our people as you know, have a hunger for education, whether you go to the village or the richest families in the cities, all of them have that great hunger for education. To me that is our strength. We have better human capital resources I would wager, on a per capita basis even than India and other countries in the region.
I would like to emphasise once again that this transition does not affect the central bank’s ability to manage the money market rate and with its help to influence all the other rates in the economy, lending and deposit activity, the economy, and inflation. However, in order to ensure this ability the Bank of Russia should change its operational activity and start to actively mop up liquidity. These operations comprise deposit operations, issue of Bank of Russia bonds and sale of assets, for example, the OFZ portfolio. Given the expected structural surplus growth, we have also decided to raise the required reserve ratio by 0.75 percentage points from 1 August. In order to stimulate deposit dedollarisation we decided to leave the difference between the ratios on ruble- and foreign currencydenominated deposits intact. We also have plans to cancel ineffective exceptions to this ratio with regard to exemption from provisioning of legal entities’ deposits and bonded loans with maturities of more than three years but with built-in options for early redemption. Our monetary policy allows us to flexibly respond to external and internal challenges, though its impact on the economy is limited. The central bank is compelled to touch upon the structural reform topic. Why so? First, unlike some countries we cannot afford fiscal or monetary stimulus for growth due to the persistently high inflation (against the target) and budget deficit.

2  BIS Review 69/2007  The chart on the left of slide 6 introduces a composite indicator of financial market liquidity in the euro area equity, bond, foreign exchange and credit markets. It is constructed to gauge three different dimensions of market liquidity. The first dimension is tightness , that is the magnitude of risk premiums required by market-makers for holding inventories of securities, and it is measured by the bid-ask spread. The second dimension is depth and resiliency , that is the degree to which the volume of transactions impacts on asset prices, and it is measured by using ratios of asset price movements to transactions. The third dimension relates to liquidity risk premia, that is, the compensation required by investors for the risk that attempts to unwind positions could be challenged by uncertain market conditions in the future. This is measured using yield spreads between securities which are known to have varying degrees of liquidity. The evolution of this indicator over time confirms that financial market liquidity has increased significantly since 2001. It rose sharply in 2003 and 2004 and markets have remained very liquid since then. The increase in market liquidity may reflect structural changes in financial markets; for example, the liberalisation of international flows of capital, the securitisation of loans, the development of new financial instruments, and the rapidly growing market presence of highly active financial market participants, such as hedge funds.