samchain/econo-pairs-v1 huggingface dataset:
Confidence indicators, net figures, seasonally-adjusted data 40  40  30  30  20  20  10  10  0  0  -10  -10  -20  -20 Househoulds  -30  -30  Total business sector  -40  -40 00  01  02  03  04  05  06  07  08  09  10  Source: National Institute of Economic Research  The recovery will take time But although growth will recover during the final two quarters of this year, we believe that GDP in Sweden will fall by more than 4 per cent in 2009. And it will take a long time before the economy is back at the same level as prior to the crisis. 2009 will be the first year since the 1940s in which GDP falls in the world as a whole. But, all in all, there are many indications that the growth rate abroad and in Sweden has bottomed out and will rise in the years ahead (Figure 2). Figure 2. GDP level, index 2007 Q4 = 100 110  110 USA  108  108 Euro area  106  106  Sweden  104  104  102  102  100  100  98  98  96  96  94  94  92  92 07  08  09  10  11  12  Sources: Bureau of Economic Analysis, Eurostat, Statistics Sweden and the Riksbank.

On the other hand, one can use a measure of underlying inflation, the CPIF, which excludes the direct effects of the repo rate on mortgage rates. Measured in terms of the CPIF, we expect inflation to be much more stable and to be close to 2 per cent for most of the forecast period. Figure 5. Inflation measured in terms of the CPI and the CPIF, annual percentage change 5  5 CPI  4  4  CPIF  3  3  2  2  1  1  0  0  -1  -1  -2  -2 00  01  02  03  04  05  06  07  08  09  10  11  12  Sources: Statistics Sweden and the Riksbank  There is still considerable uncertainty surrounding future developments (Figure 3). It is possible that the improved situation in the financial markets will contribute to a faster recovery in the world economy than we are expecting in the main scenario of the Monetary Policy Report. On the other hand, the recovery may be slower than expected when the fiscal policy stimulation packages around the world are gradually phased out. There are many potential risks along the way. But our forecast is that if we hold the repo rate low up to autumn 2010 and then begin raising it, this together with other measures will contribute to a stable recovery and mean we attain the inflation target of 2 per cent.
In Europe, without a leverage ratio but with risk-based capital standards, there were incentives for banks to expand balance sheets and shade downwards risk weights. Canadian banks’ incentives sat somewhere in between. Some recent studies have looked at these behavioural shifts in greater detail. During the euro-area crisis, banks increased their exposure toward higher risk government bonds, which carried no capital requirement (Acharya and Steffen (2015)). And following the Lehman crisis, German banks reduced their corporate lending less when the capital requirement was set under the standardised approach (Behn, Haselmann, Wachtel (2016)). In the UK, higher risk mortgages shifted towards lenders whose capital requirements were less risk-sensitive after the introduction of Basel II (Benetton et al (2017)). Recent research has considered how the leverage ratio announcement affected behaviour among a panel of over 650 European banks (Acosta-Smith et al (2017)). It finds a significant increase in risk-taking among those banks for whom the new regime was a binding constraint. This risk-taking was greater, the further these banks were from meeting the new 3% threshold: banks with leverage ratios of 1.5%, 2% and 2.5% were found to increase their risk-taking by 3.4, 2.3 and 1.1 percentage points of risk-weighted assets respectively. This is clear empirical evidence of the risk-shifting channel at work. This is only, however, one side of the risk equation. There were two mitigating factors on the other side. First, a rise in the leverage ratio also boosts these banks’ capital.

Michael C Bonello: The adaption of the euro Welcome address by Mr Michael C Bonello, Governor of the Central Bank of Malta, , during the concert held to mark Malta's membership to the euro area on Saturday, Valletta, 12 January 2008. *  *  *  You have joined us here today to mark a major milestone in our country’s economic history. During more than two millennia the Maltese people have used many different currencies in circumstances most often reflective of Malta’s status as a dependency of some larger and more powerful nation. The adoption of the euro, however, is a change of currency with a difference. This time it has taken place because Malta, out of its own choice, has joined fourteen other sovereign Member States of the EU in an economic and monetary union designed to complement the Single Market, a venture that could rightly be described as an epoch-making development in the history of our continent. For Malta, as for the other new members of the euro area, the euro offers the prospect of enhancing the economy’s potential to grow faster. The elimination of exchange rate risk and currency conversion costs should result in increased trade, while the low interest rate and inflation environment of the euro area should make for reduced business costs and greater macroeconomic stability. Combined with the fiscal discipline associated with monetary union, this should translate into higher credit ratings and improved investment prospects.
The more established the surplus target is perceived to be, the higher will be the credibility of Swedish fiscal policy and the lower will be the future interest rates on Sweden’s central government debt. There is a clear parallel here with the Riksbank’s inflation target. 5 The more certain households and companies are that inflation will be close to the inflation target, the less time and energy they will need to devote to adapting their savings, investments and wages to inflation, and the fairer price setting in the economy will be. From the Riksbank’s perspective, it is also clear that monetary policy will be more efficient the more predictable developments in public finances are, and the greater the confidence in the sustainability of fiscal policy. Predictability is important to us as our forecasts for fiscal policy affect our assessments of resource utilisation and future inflationary pressures. Confidence in the sustainability of fiscal policy is important as otherwise it will be the market participants’ demands for risk premiums, which often vary substantially, rather than our repo rate path, which determine interest rates. For these reasons the Riksbank has, in its response to a consultative document from the government in March this year, expressed its support for making the surplus target obligatory by incorporating it into the Budget Act. We have also declared that we share the assessment that general government net lending over the next 10 years should once again average 1 per cent of GDP.

The strong public finances to start with have helped Sweden to pursue an expansionary fiscal policy during the crisis without putting the long-term sustainability of public finances at risk, and to keep interest rates down at German levels. (Slide: Government bond rates of different countries). Important to have a surplus over the economic cycle One of the reasons why public finances in Sweden are so strong is that after the crisis of the 1990s the government and parliament formulated a surplus target for the public sector. Public finances were to show a surplus of 2 per cent of GDP over an economic cycle. This was in line with the growth and stability pact in the EU, which among other things meant that public finances should be in balance in the medium term, or show a surplus. This target was changed to 1 per cent of GDP when the definition of general government net lending was changed in the National Accounts. During the ten-year period prior to the most recent crisis, the surplus averaged 1.4 per cent of GDP and it was possible to reduce the gross public debt by almost half in this period. BIS Review 56/2010  5  The framework for fiscal policy also includes another essential part, the expenditure ceiling that prescribes an upper limit in Swedish kronor for general government expenditure over the coming three years.
The clearing spread for the narrow set would remain 10bps (bidder 6, as the cheapest narrow bidder, would be allotted only £ against his bid for £ The clearing spread for wider collateral would be 19bps £ would be allocated to bidder 1). That results in a stop-out spread (the difference between the clearing spreads for wider and narrow collateral) of 9bps. The stop out spread remains at 9bps until the point at which £ is allocated to the wider set. At that point, bidder 6 is no longer filled, and the clearing spread on the narrow set rises to 12bps. Bidder 1 receives £ out of the £ he has bid, and so the clearing spread remains at 19bps on wider. But the stop out spread is then 7bps (Chart 5). At the point where £ is allocated to wider, the clearing spread on narrow is still 12bps (bidder 6 is unfilled, and bidder 5 gets £ against a bid of £ but the clearing spread on wider falls to  16  8  Strictly, the stop-out spread is not defined if the allocation is 100% to one type of collateral. BIS central bankers’ speeches  17bps (bidder 1 is fully allocated and bidder 2 gets £ The stop out spread falls to 5bps (Chart 5). Continuing this process, and tracing out the spectrum of stop out spreads and the associated proportions of the funds allocated to wider collateral, results in the auction demand curve.

(ii)  It was also difficult to decide the appropriate spread to charge for lending against wider relative to narrow collateral, to mitigate adverse selection and the moral hazard risk. A minimum 50 basis point spread was applied for wider collateral. (iii)  Those long-term repos exposed the Bank and the commercial banks to significant interest rate risk. That is because commercial banks’ reserves balances were being remunerated at Bank Rate but the minimum bid rate in the LTRs was the fixed  10  The narrow and wider collateral sets were redefined in February 2011. The changes will take effect from 1 July 2011. See http://www.bankofengland.co.uk/markets/marketnotice110211.pdf for more details. 11  For more information about changes in the Bank’s balance sheet in response to the crisis, see Cross and Fisher, “The Bank’s balance sheet during the crisis”, Bank of England Quarterly Bulletin, 2010 Q1. 6  BIS central bankers’ speeches  3-month market (OIS) rate at the time of the operation (plus the spread for wider collateral). So when Bank Rate was cut much more rapidly than was anticipated by the market during Autumn 2008, the Bank recorded a large, unintentional surplus (and the banks a corresponding loss).12 In order to try to resolve these issues, the Bank enlisted the help of Paul Klemperer from Nuffield College, Oxford, an expert in auction theory, to help re-design its long-term operations.
The growth of investments and the concomitant improvement of employment, increase both the current incomes of households, and their expected future incomes, which is associated with increased consumption and decrease in the savings in the economy. As a consequence of these processes, the gap of the balance of payments current account widened to levels over 5% of GDP in 2003 and 2004, and further expanded to 11.9% as of end-2005. From the perspective of current account immediate dynamics, each economy faces the question if the current level of deficit or surplus is determined by structural factors, i.e. it is close to a balanced level, which can be maintained within a medium-term, or it is the consequence of unsustainable trends and one-off factors. Both groups of factors played an important role in the development of the current account deficit in 2005. First of all, the above-mentioned growth of investments was accompanied by considerable imports of investment goods. In 2005, the imports of this group of goods grew by 31.2%, while their share in the total structure of imports reached up to 28%. This trend was associated with a slow-down in the growth of imports of non-energy raw materials and consumer goods. In the current year, we expect the rate of import of investment goods to remain high, given the rapid pace of technological innovation of the economy, which is mainly accounted for by the forthcoming EU membership of our country.

The high productivity figures in Sweden were partly connected to the rise in the telecommunications products industry, but a rise in total factor productivity has also been seen in other parts of Swedish trade and industry, mainly in the engineering and pharmaceuticals industries. Despite the fact that the importance of IT is now being played down, the extensive use of computers, networks and the Internet in Sweden will make a positive contribution to productivity. Efficiency gains should arise, for instance, when tax authorities, social insurance systems, municipal services, etc. move over to Internet-based self-service. The connection between IT use and internationalisation of trade and industry appears particularly strong, with increasingly advanced networks of specialised sub-contractors. It appears that the countries which had good productivity growth during 1995-2000, such as the USA, Finland, Australia and Sweden, all had trade and industry that opened up to international exchange more quickly than other OECD countries, parallel with an increase in IT use. Challenges The question is whether these improved conditions are enough to provide Sweden with stable, good growth over the next five to ten years. Can we trust that the problems of the 1970s, 1980s and 1990s are definitely over? Or are there other institutional or structural changes which the economy need to undergo? Some of the growth during the 1990s was probably a temporary effect of the economy making a recovery after having been so hard pressed at the beginning of the 1990s.
The public deficit of the euro area has shrunk from 6.3% in 2009 to 4.1% in 2011. At the current juncture, this is clearly an asset for us and an element of confidence both for the markets and  BIS central bankers’ speeches  1  economic agents, and needs to be further enhanced. In addition to these efforts at the national level, a much stronger framework for common discipline has been put in place, which represents a major step forward towards a more integrated economic union. It is crucial that all of the efforts in this area are pursued with determination. Now turning to competitiveness, here too the progress already made in terms of structural reforms and the adjustment of unit production costs in many countries is very encouraging. Never in the recent past have the European economies been reformed so much in such a short space of time. I could cite many examples, in Spain (labour market and financial sector reforms), Italy (pension and services market reforms) and in France, where an important pension reform was made in 2010 and where structural reforms on the labour market and on the goods and services market are in preparation. These structural reforms constitute the necessary foundation for dynamic and sustainable growth in the future and they must be vigorously pursued. Furthermore, at the European level, the new Stability Pact includes a surveillance mechanism for macroeconomic imbalances, which had been missing up till now.

In this context, we felt it was vitally important to defuse these unfounded fears that were not only fragmenting the euro area’s financial markets, but also, in the longer term, threatening to undermine the effectiveness of our monetary policy. That is why we created the OMT which will consist of an ex ante unlimited intervention on the secondary market to acquire sovereign bonds for which we consider the risk premium applied by the markets is unjustifiably high. The OMT will therefore represent a massive and effective backstop to the unjustifiable increase in sovereign yields and will allow us to counter the fragmentation of the euro area’s markets and restore the proper transmission of our monetary policy. The use of this instrument will be subject to very strict conditions: States must have previously negotiated a programme with the ESM and must respect their commitments regarding fiscal consolidation, financial reforms and competitiveness. This should enable a return of confidence and stability, not just in the short and medium term thanks to our action, but also on a longer term basis. *** Today, the euro area is advancing with determination in the right direction. The Eurosystem’s monetary policy is a source of immediate confidence and stability. Its governments are making fiscal, structural, financial and institutional reforms that will ensure the future stability and growth of the euro area. Our determination is total and our efforts must be continued relentlessly. I thank you for your attention. 4  BIS central bankers’ speeches
In the meantime, consumption growth will largely be determined by income growth, the trajectory of wages and the strength of the labor market. The U.S. expansion is now in its eighth year. By historical standards, it is long in the tooth. Despite this, I am optimistic that the economic expansion will continue over the next few years. First, it is important to note that economic expansions don’t simply die of old age. Usually, they end either because inflation climbs and the Federal Reserve responds by shifting to a much tighter stance for monetary policy, or because the economy gets hit with a large unanticipated shock that the Fed and the fiscal authorities cannot respond to quickly enough, or with sufficient force, to prevent an economic downturn. While economic shocks are, by their very nature, difficult to forecast, the risk that the Fed will snuff out the expansion anytime soon seems quite low because inflation is simply not a problem. Not only are underlying inflation trends very subdued—for example, the core personal consumption expenditures deflator has risen at only a 1. 7 percent annual rate over the past year—but the economy is not growing much above its sustainable long-term pace. Thus, while pressures on labor resources have been increasing, but quite slowly. Finally, the recent strengthening of the dollar will put downward pressure on import prices and limit the ability of domestic producers to raise their prices. Second, the household sector’s financial condition is in unusually good shape for this point in the economic cycle.

This might involve higher rather than lower interest rates because of a risk premium, plus greater uncertainty. Before moving on from the subject of competitiveness, let me leave you with a couple of thoughts. If Hong Kong has, in some underlying sense, been suffering from severe uncompetitiveness, how does one explain the continuing strength of the trade and current account performance...  … and the fact that the pace of recession in Hong Kong over the last two years has not been significantly different from that in a number of other economies in the region? 6  BIS Review 17/2002  I am drawn to conclude that the criticisms of the peg on competitiveness grounds do not stand up too well under scrutiny. Even if the foregoing analysis and discussion does not prove unequivocally that fixing is superior to floating, it does challenge the contention that perceived problems of competitiveness would dissipate if only we had a floating exchange rate. Living with deflation Let me turn now to the other focus of criticism of the monetary regime that I mentioned earlier, namely deflation. There are four main factors which have been contributing to falling prices in Hong Kong. First, there is the state of the global economy. A combination of recession and remarkable success in taming inflation in recent years have left policy makers in several countries facing the unusual situation of deflation. Hong Kong has not been alone, although the process has perhaps been more prolonged here than in many other places.
On inflation expectations, we pay close attention to a wide range of information drawn from surveys, and financial market prices, recognising that they are all, in different ways, tricky to interpret. We also need to be mindful of the risk that any further increases in the prices of everyday items like food and energy will heighten public perceptions of inflation, and raise expectations about the future overall rate of CPI inflation. Conclusion The outlook for the economy looks very different now from a year ago. We are seeing some powerful global forces playing out, in financial markets, in commodity markets, and in the world’s largest economies. Their impact on the UK is highly uncertain, partly because they  BIS Review 22/2008  5  are hard to understand and to predict, and partly because much will depend on the way policymakers around the world respond. The MPC will need to respond continuously and flexibly to its assessment of the changing balance of two key risks. On the one hand, there is a risk that demand will slow too sharply, but on the other there is a risk that a temporary shock to inflation will prove persistent. A temporary pick-up in inflation – by itself – does not mean that the Committee needs to tolerate a significant weakening in demand. But if inflation expectations appear to be persistently elevated, then the Committee will need to tolerate more slack to keep inflation on target.

So we are not required to raise  1  This estimate is taken from the Bank of England Financial Stability Report, October 2007, Box 1 (Mapping the financial system). It comprises the estimates of total global securities markets, less bank deposits. BIS Review 22/2008  3  interest rates sharply to counteract the rise in inflation which we expect over the next few months. We can decide what is appropriate in the light of all the circumstances. And the purpose of the Open Letter regime is to give us an opportunity to explain how we propose to use our discretion. Over the years the MPC has explained that it seeks to achieve its inflation objective in the medium term by varying interest rates to steer overall demand relative to supply. If price and wage setters do recognise that the imminent pick-up in inflation will be short-lived, then the implications of the spike for monetary policy, and for the necessary balance of demand versus supply, should be limited. But if price and wage setters start to expect higher inflation to persist, then the Committee will need to restrain demand, and so generate some slack in the economy, in order to bring inflation expectations, and inflation itself, back down. Clearly therefore it is a matter of intense interest to understand how people form and revise their expectations. Unfortunately our understanding is very incomplete.