samchain/econo-pairs-v1 huggingface dataset:
Inevitably, correcting major imbalances comes at a very high cost in terms of employment and welfare, and that is the lesson that we can draw from the Great Expansion that ended in 2008 with the bursting of the real-estate bubble. Imbalances have to be corrected, although obviously not anyhow or at any speed. It has been argued, with a striking image, that if you are on the twenty-fifth floor of a building and wish to descend to street level, it is better to use the lift or the stairs than to jump out of the window, even though that would definitely be the fastest way down. The reforms that have been approved in Spain – in particular the adjustment of public spending and revenues, bank restructuring and labour market reform – have been rigorous, but also prudent, and this has also contributed to the recovery. That is certainly the opinion of our European partners and of the markets. The European Monetary Union originated more than twenty years ago in the Maastricht Treaty, and became a reality in the markets more than fifteen years back. In those days, the idea of a Monetary union was capable of mobilising extensive political support, but with time, and the crisis, this has been somewhat eroded. The Monetary Union alters economic policy priorities and their relative importance and changes the way in which economic pressures are relieved. It is an economic construct, but also a political one, and cannot survive without political support.

through the adjustment of domestic prices and costs relative to external ones, and by curbing government spending and revenue shortfalls, in real terms. This is what the Spanish economy has, with great effort, been achieving since 2012. In the truly difficult circumstances of 2012, Spain avoided a bail-out that would have been very painful in many ways, and certainly from an economic and social standpoint. Spain never lost its access to the capital markets. Admittedly at very high interest rates, and with very large risk premiums, our Treasury was always able to fund itself on the markets, because the markets, while mindful of the risks involved, very quickly appreciated (I am referring to the summer of 2012) the seriousness and decisiveness of the corrective action being taken. Spain reacted as a responsible and loyal European Union and Monetary Union member. It did not attempt to shift the blame onto anyone else, even though the euro crisis, which affected us very directly, obviously did not arise exclusively, or originally, in the Spanish economy. BIS central bankers’ speeches  3  To call the correction of unsustainable imbalances (like the balance of payments deficits of 2007 and 2008, of around 10% of GDP, and the budget deficits, which ranged from 9% to 11% between 2009 and 2012) austerity, is not really a very good description of reality. Changing direction when on a path towards impossible and unsustainable situations is not “austerity” but common sense and, in a very real sense, patriotism.
Christian Noyer: A new regulatory framework for a new financial system Speech by Mr Christian Noyer, Governor of the Bank of France, at a round table discussion at the University of Paris-Dauphine, Paris, 11 December 2008. *  *  *  Ladies and Gentlemen, It is a great pleasure for me to take part in this round table discussion. Today, the prevailing view is – and justly so – that it is necessary to rethink financial regulation. There are two reasons for this: a)  Financial markets and banks are, more or less strongly, confronted with problems of asymmetric information;  b)  Operational inefficiencies may arise, leading, in some extreme cases, to the seizing up of certain market segments. Needless to say that these imperfections are interconnected. In many respects, the financial crisis is the expression of these imperfections. Three examples can be used as an illustration. The underestimation of risk and the mispricing of assets during the upswing of the financial cycle show that markets may generate excess investment in certain sectors of the economy (e.g. the US real estate sector). Furthermore, it appears that financial innovation and the change in banks’ economic models have resulted in a significant increase in information asymmetries and, more importantly, in lower incentives for economic agents to pay attention to these asymmetries. Lastly, the fact that some market segments seized up during the crisis suggests that some infrastructures necessary for their functioning are lacking.

It would definitely be an important reference for the SMEs. 2  BIS central bankers’ speeches
In performing their intermediation function of channelling funds between the savers and investors, depositors need to be assured of the safety of their deposits and the efficiency in the manner in which the funds are mobilised and channelled to productive investment. Through their extensive branch network, and now through internet banking, banking institutions are able to efficiently reach an extensive customer base nationwide. As a custodian of public funds, maintaining integrity and confidence in the banking sector is vital towards ensuring the stability and soundness of our financial system. The trust of the public in banking institutions is inspired by the confidence in the safety and security of deposits, and that these funds will be professionally managed. Banking business involves risks and these risks need to be rigorously managed if public confidence in the banking system is to be secured. These risks involves credit risks, market risks, sovereign risks and foreign exchange risks, to name a few. There is therefore no room for negligence. This emphasize that the business of banking is too important to be left to self regulation. The regulatory framework put in place by Central Banks are aimed to ensure the soundness and efficiency of the system and the protection of the interest of depositors and investors. Before proceeding further, I would like to touch some aspects of the regulatory framework instituted for the Islamic banking industry in Malaysia. In Malaysia, we have embarked on the concept of dual banking where the Islamic banking system operates in parallel with the conventional banking system.

One example was when the authority of a European country suggested letting a bank go bankrupt for having made management mistakes. Wisely, it quickly changed its mind, showing that wisdom does not mean never committing errors but rather recognising such errors in time. The consequences of the other example of the mishandling of moral hazard were worse. I refer here to the initial reaction to the euro area sovereign debt crisis. As we have often repeated at the European Central Bank, the negative consequences of openly admitting the possibility of sovereign debt default by one of the euro area countries, and even of demanding default as a centrepiece of any bail-out programme, were perhaps not taken sufficiently into account. And these factors have no doubt contributed significantly to the crisis attaining its current scale. But let us be clear: avoiding the costs associated with the potential bankruptcy of or default by banks and countries is perfectly compatible with laying down rigorous conditionality criteria when extending aid to resolve crises. Averting bankruptcies in specific cases does not mean going “soft” on banks or countries which took on too many risks or incurred excessive debt. Countries or credit institutions should be helped only in exchange for strict conditions. And not only for moral reasons (never helping those who do not help themselves), but essentially because to be able to stand on one’s own two feet it is necessary to enact far-reaching restructuring and reforms.
We have strong economic activity at the same time as monetary policy continues to be expansionary. Inflation has been below target for a longer period, but is now rising and approaching 2 per cent. The expansionary monetary policy is necessary for inflation to stabilise at 2 per cent. Despite the difficulties encountered in recent years in bringing inflation up, I think that flexible inflation targeting, on the whole, works well. But monetary policy cannot, by itself, solve all the economic problems Sweden and the rest of the world are struggling with. Real interest rates have fallen for a long time in the rest of the world and in Sweden. It is also likely that interest rates will remain low in the period ahead. This may make it more difficult to stimulate the economy with interest rate cuts when economic activity becomes weaker and inflation is below target. In such a case, it could be necessary, both for the Riksbank and other policy areas, to implement other measures. When the interest rate has been low for a longer period, it also entails increased risks for the financial system and financial stability. Stability is a condition for both monetary policy and fiscal policy to succeed. The free movement of capital and 20 [23]  the rapid financial development have led to increased capital flows that affect asset prices, indebtedness and exchange rates. And this limits monetary policy’s degree of freedom, above all in smaller economies such as ours.

It is not difficult to find reasons why this could be the case, particularly not in the period after the financial crisis. The supply of acceptable collateral on the financial markets decreased when a significant share of the assets were lost during the financial crisis. The sovereign debt problems in the euro area may also have reduced the supply of safe assets. The demand for safe assets may have increased due to new financial regulations, such as Basel III. Finally, central bank purchases of government bonds reduce supply on the financial markets. To summarise – making predictions about future economic development is, as everyone knows, very difficult. The economic system is complex and new innovations and changes that are difficult to predict happen all the time. The theory of secular stagnation was presented for the first time as early as the 1930s by the American economist Alvin Hansen. 8 It proved to be incorrect at that time and I have suggested that there may be reason to still be sceptical about it now. 9 The current low interest rate environment may very well have been caused by factors other than secular stagnation and need not therefore be long-lasting. A look-back in history shows that real interest rates often vary in longer cycles. They have been on the same low levels as today only to then return to more normal levels.10 The difficulty we now face is assessing how long this cycle of low real interest rates will last.
Given this, it does not appear entirely unnatural for fiscal policy to support monetary policy in exceptional circumstances with regard to maintaining confidence in the inflation target – and thereby ensuring that the central bank's policy rate can continue to be an effective tool in the future. Conditioning of monetary policy a possible route? An area that we as central bank have control over, and where we could possibly become more effective, is our communication of future monetary policy. Although we have been publishing a forecast for the repo rate for many years now,  10 For a more detailed discussion of the Riksbank’s monetary policy toolbox, see Ingves (2020). 11 Moreover, ideas have recently been put forward with regard to fiscal policy being a more effective stabilisation  policy tool than monetary policy in some situations, in that fiscal policy measures can more directly target individual sectors of the economy where the problems are greatest, see Woodford (2020). 12 See, for example, Sims (2016). This idea has also been put forward earlier in the Swedish debate, see Borg (2003). 7 [15]  we have to acknowledge that our forecasts during the past decade have systematically overestimated how quickly the interest rate can be raised. We have not been alone in this overestimation – the market forecasts have looked fairly similar (Figure 6). They were better than the Riksbank's during the period 2011-2013, but the pattern is essentially the same – substantial overestimates and inaccurate forecasts.

Here today I have focused on the interest rate, the actual and expected, and I do not intend to say very much about other tools.10 These have without doubt been important in the situation that has arisen, but my proposition is that the interest rate is preferable as the main monetary policy tool. More important role for fiscal policy However, one circumstance that has become obvious in recent years is that fiscal policy needs to play a greater role in stabilising the economy than has been the case in recent decades. There has long been a tendency to consider it the task of monetary policy and not fiscal policy to stabilise economic activity when the exchange rate is floating. But the central banks’ gradually declining room for manoeuvre has contributed to a reconsideration of the role of fiscal policy in stabilisation – monetary policy can no longer be “the only game in town”, as for instance former ECB Governor Mario Draghi has put it.11 One normally expresses it as fiscal policy shall help to parry economic downturns. An interesting thought that I feel deserves greater consideration is whether fiscal policy could play a more explicit role also with regard to attaining the inflation target.12 After all, the inflation target in most countries has the support of the political system. Thus, it is not merely the central bank's target, but society's target. Fiscal policy will also function better if the inflation target can continue to be the anchor in price-setting and wage formation.
Holston, K., T. Laubach and J. Williams (2016), “Measuring the Natural Rate of Interest: International Trends and Determinants”, Federal Reserve Bank of San Francisco Working Paper No. 2016–11. Joyce, M., D. Miles, A. Scott, and D. Vayanos (2012), “Quantitative Easing and Unconventional Monetary Policy – an Introduction”, Economic Journal, 122(564), F271–82. Landau, B. and F. Skudelny (2009), “Pass-through of external shocks along the pricing chain: A panel estimation approach for the euro area”, ECB Working paper No 1104. Meltzer, A.H. (1999), “The Transmission Process”, Working Paper, Carnegie Mellon University. Modigliani, F. (1963), “The Monetary Mechanism and Its Phenomena”, Review of Economics and Statistics, 45(1), 79–107. Interaction  with  Real  Modigliani, F. (1971), “Monetary Policy and Consumption”, in Consumer Spending and Monetary Policy: The Linkages. Boston: Federal Reserve Bank of Boston, 9-84. Osbat, C. and M. Wagner (2006), “Sectoral exchange rate pass-through in the euro area”, ECB. Praet, P. (2017), “Calibrating unconventional monetary policy”, speech at The ECB and Its Watchers XVIII Conference, 6 April. Smets, F. and R. Wouters (2007), “Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach”, American Economic Review, Vol. 97, No 3, 586–606. Stracca, L. (2017), “The Euler equation around the world”, The B.E. Journal of Macroeconomics, Vol. 17, Issue 2. Svensson, L. (2000), “Open-Economy Inflation Targeting”, Journal of International Economics, 50, 155–183. Taylor, J.B. (2000), “Low inflation, pass-through, and the pricing power of firms”, European Economic Review, Vol. 44, Issue 7, 1389–1408.

We believe that our approach of setting the targets and forecasts rather than forecasts alone on a declining path involves a firmer commitment on behalf of the central bank; therefore it is more transparent and more effective in anchoring inflation expectations. 2  BIS central bankers’ speeches  Dear guests, Being a central banker, I have mostly focused on inflation and monetary policy dimension of commodity price movements. Needless to say, the course of commodity prices has implications on many other key macro variables. For example, as a net energy-commodity importer, Turkey’s dependence on energy imports makes the current account balance more sensitive to volatility in commodity prices. Recent uncertainty surrounding the energy market is not comparable to any other period in the near history. Moreover, there is a significant risk that commodity prices stay volatile due to uncertainties regarding global economy and the exceptionally loose monetary policies across the globe. Therefore, medium-term outlook for commodity prices is unusually hard to predict. In the long term, supply conditions and structural policies should adjust to stabilize the energy and other commodity prices. The recent concrete steps as part of the medium term programs in Turkey, aiming at curtailing the dependence on energy imports by switching towards domestically produced and renewable energy sources, have important implications also for decreasing the sensitivity of current account balances to international price movements.
In annual average terms, the discrepancies between the behaviour of domestic spending and of net external demand were further accentuated in 2005; however, throughout the year there were incipient signs of a change in the composition of growth, as national demand embarked on a slight slowdown and as a likewise modest correction was seen in the contractionary contribution of the external sector. Nonetheless, initial estimates for the opening months of 2006 would suggest that this rebalancing of the composition of expenditure has come to a halt, against a background in which activity has continued to grow sharply. In the absence of sufficiently appreciable changes in the drivers of the expansion and of significant corrections in the pattern of growth, the imbalances already building up in the Spanish economy have become bigger and certain factors of vulnerability to potential future shocks have been accentuated. The high growth rates of domestic demand have combined with the inertia persisting in cost and price determination and have continued fuelling the inflationary pressures that have been eroding the  BIS Review 60/2006  5  economy's competitiveness. In turn, the fact that private-sector spending has outpaced incomegenerating capacity has made for fresh increases in corporate and, above all, household debt, and for a growing resort to external saving. Both factors resulted in an ongoing deterioration in the nation's borrowing requirements, despite the fact that the public sector has appreciably increased its saving capacity.

However, average labour costs have grown at relatively moderate rates as a result of the rise in employment in industries with comparatively lower wages, which are those where the influx of immigrants is proving greater. In this respect, the sizeable immigrant inflows are acting as a factor of wage flexibility in certain labour market segments. In any event, while this behaviour of wages may be considered moderate, compared with their historical, upward pattern, growth has remained higher than that of wages in other euro area countries. Moreover, these developments have taken place against a background of very low productivity gains, meaning that the cost growth differential with the euro area has remained wide. This differential is proving particularly harmful for manufacturing industry, which has continued under increasingly sharp pressure from foreign competition. It should be borne in mind that, in the euro area, the consequences of losses in competitiveness induced by continuing demand pressure may be difficult to reverse. This is because they require a direct adjustment of relative prices and costs based on the effective moderation and the sufficiently flexible behaviour of wages. In Spain's case, moreover, given the specialisation of the productive structure in industries where demand is more sensitive to relative prices and in which the pressure exerted by products from the emerging economies is very high, companies may find themselves having to make a sharper adjustment to make up for lost ground on international markets and on the domestic market.
During the course of, say, four decades, we have gone from regarding strictly-regulated financial markets as the norm, to regarding the financial markets as needing to have free rein to be able to benefit society, to then swing back towards the idea of more regulation. Another example is that we, at least here in Sweden, have moved from only twenty or so years ago finding it difficult to imagine anything other than a fixed exchange-rate regime to now regarding this as completely out of date and off the agenda. A slightly less formal way of expressing this insight would perhaps be to say that one should never be too confident. What seems obvious now may not seem so tomorrow. Economics does not have any rigid conformity to particular principles; it involves trying to understand the effects of the actions and interactions of a large number of people in a constantly changing world. This presupposes a willingness to reconsider. There is otherwise a risk that the field of vision will narrow too much and that one will not observe phenomena that should lead to questions and analysis, as they are not considered to belong in the intellectual reasoning currently applied. Perhaps it was this type of “blinkers” that prevented us from noticing the build-up of risk prior to the crisis. In my speech today I intend to discuss this from a central bank perspective and to focus on two important areas that are central parts of central banks’ monetary policy frameworks, namely independence and inflation targeting.

Major differences from when I last worked at the Riksbank I have worked at the Riksbank twice, during two entirely different regimes – or paradigms, if you wish. The first time was during a period of around fifteen years from the early 1970s to the mid-1980s. At that time, the credit and foreign exchange markets were regulated. The Riksbank determined both the price and size of the credit on offer and had access to tools such as liquidity ratios and lending caps. The Riksbank also had regular meetings with the commercial banks, to closely monitor that they were observing the regulations. The banks were told in no uncertain terms if they had failed on some point. The Riksbank was able to conduct a policy that stabilised economic activity to some extent, but monetary policy – to the extent that one can call it such – was largely subordinate to other economic policy. One important task for the Riksbank during this period was to secure the funding needs of the government and the housing sector. This was of course only possible because the markets  BIS central bankers’ speeches  1  were so strictly regulated and separate from the surrounding world. In other words, the situation was completely different then – although some of the regulation tools used then have begun to come back into fashion, albeit in another form and context.