samchain/econo-pairs-v1 huggingface dataset:
Ravi Menon: Forces driving the global economic outlook Keynote address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Investment Management Association of Singapore 13th Annual Conference, Singapore, 14 March 2012. *  *  *  Mr Lester Gray, Chairman of IMAS, Distinguished guests, ladies and gentlemen, good morning. A. Fragile equilibrium  1. The world economy appears to have found a fragile equilibrium. There are weaknesses in key economies balanced by pockets of growth elsewhere. More notably, the worst fears of the last three months of 2011 have not materialised. The last six weeks in particular have shown signs that the global economy has avoided imminent disaster. 2. In the Eurozone, the threat of a major crisis has receded, at least for now.   A deal has been struck on the second Greek bailout package, allaying fears of a messy default situation.   The ECB’s two tranches of Long-Term Refinancing Operation, or LTRO, amounting to more than 1 trillion Euros, has provided Eurozone banks much needed liquidity to meet their funding needs.   The LTRO has also helped to compress sovereign yields significantly, particularly at the front end of the yield curve. 3. In the United States, the risk of a double dip recession has waned.   Employment data have surprised on the upside.   New orders for both manufacturing and non-manufacturing continue to indicate higher levels of activity for the next six months. 4.

Foreign direct investment doubled over 2012, although a large portion of the increase was due to the acquisition of Grupo Modelo. Mexico stands apart. As of February, Moody’s boosted its rating on Mexico’s government bonds to A3 – joining Chile as only the second Latin American country with an “A” rating. The structural reforms Mexico has passed played a role, but so did the ability to pass them. A unified political will to work for what’s in the nation’s best interests is a rare find these days and something about which Washington can only dream. Other nations, such as Brazil, may be headed in the opposite direction. Brazil’s economy likely shrank in the second half of 2013 and prospects for 2014 are half of what Mexico’s growth is projected to be next year. The Brazilian slowdown follows years of rapid growth and rising prices. Now, there are fears of a Brazilian house price bubble – homes in Sao Paulo are selling at three times 2008 prices. In contrast, Mexico City house prices are up 35 percent. I am not forecasting a housing bust for the Brazilian economy, mind you. But consumers may have to deleverage, which will detract from growth. The government may have to rein in spending as well. Brazilian government debt has outpaced GDP growth in recent years and currently stands at 57 percent of GDP, nearly twice that of Mexico. Faced with poorer growth prospects and a weakening labor market, Brazilian banks will likely tighten lending after a decade of credit expansion.
A: It is true that there is currently an enormous amount of liquidity at the global level in general and in the euro area in particular. And there are very low risk premia across all asset classes, not just for public debt. This necessitates great vigilance on the part of investors and authorities in order to avoid encouraging excessive risk-taking. And it will also be very important to exercise macroeconomic vigilance, because there is going to be abundant  2  BIS central bankers’ speeches  liquidity in the next few years. To achieve this, macro prudential instruments should be used to their full extend. Q: Spain is issuing bonds at historically low interest rates, but its debt is standing at around 100% of GDP and within ten years it will be faced with enormous payouts upon maturity. What is going to happen then? A: It is no mystery: debt sustainability depends on a sound fiscal policy, and Spain is on the way to achieving this. It is taking time, but Spain has already made good progress on reducing the deficit. This work is not yet done and should continue until equilibrium is reached. Debt sustainability requires a significant increase in nominal GDP growth. The ECB’s contribution is to bring inflation back to levels below and close to 2% for the euro area as a whole, as set out in our mandate. However, in the long term the most important thing is real growth and this can only be achieved by increasing productivity.

This is especially important just now as there is very considerable uncertainty about the future and the Riksbank’s toolbox is perceived to be limited or even exhausted. Third, because it is important to analyse and discuss whether and if so what central banks, including the Riksbank, can and should do to combat climate change. I will argue that the Riksbank can act with strength and security in an economic crisis, and I will exemplify this in the form of a financial crisis triggered by climaterelated events. The Riksbank’s toolbox has changed but it is not empty. But in order for our measures to have a profound impact, we need to work together with other authorities. Good cooperation with other authorities and in international networks is also key when it comes to the Riksbank’s scope for contributing to climate adaptation. The Riksbank can contribute to a more sustainable future, but only as a complement to other effective climate policy. The Riksbank and other central banks will not be able to replace the need for an effective climate policy that should be focused on setting a price on carbon emissions. Let me begin by focusing on the issue of how the Swedish economy is affected by climate change. The climate and its effect on the economy and the financial system The climate is a particularly complicated system. This means that the economic consequences of climate change are difficult to predict.
Gordon, Paul, Piotr Skolimowski and Craig Stirling (2019), “Lagarde’s ECB Toolkit Threatened as Subzero Skepticism Grows”, Bloomberg, 31 October. Jansson, Per (2016), “Time to scrap the inflation target?”, speech at Swedbank, Stockholm, 7 December. Jansson, Per (2017), “The ideological debate on monetary policy – lessons from developments in Sweden”, speech at Fores, Stockholm, 6 December. Jansson, Per (2018), “Monetary policy in less favourable times – what are the options?”, speech at Insurance Sweden, Stockholm, 4 December. Milne, Richard (2019), “Riksbank set to exit negative rates with December rise”, article in Financial Times, 24 October. 14 [17]  Orphanides, Athanasios and John C. Williams (2003), “Imperfect Knowledge, Inflation Expectations, and Monetary Policy”, NBER Working Paper No. w9884. Weiss, Ittay (2017), “Nothing matters: how the invention of zero helped create modern mathematics”, The Conversation, 20 September, https://theconversation.com/nothing-matters-how-the-invention-of-zero-helped-create-modernmathematics-84232  15 [17]  Figure 1. Inflation, 1350-2018 CPI, annual percentage change 300  300 CPI  200  200  100  100  0  0  -100 1350  1450  1550  1650  1750  1850  1950  -100  Source: The Riksbank  Figure 2. Share of employed persons in industry and mining and private service sector respectively Per cent  35  35 Private services Industry and mining  30  30  25  25  20  20  15  15  10  10  5  80  85  90  95  00  05  10  15  5  Note.

In the euro area, where banks are dominant, interventions were designed to ensure that adequate liquidity would flow into the system without obstacles or restrictions. It has become commonplace to talk about those measures as "unconventional" and, indeed, they are. The important point, however, is that they do not substitute, but complement "conventional" movements in policy rates and can be implemented in parallel. In other words, there is no need to wait for policy rates to reach zero (or any "lower bound") to innovate in the design and implementation of monetary policy. For the Euro area, the most important shift took place in October 2008, when the Governing Council decided to allocate liquidity to banks in unlimited amounts at the policy rate. Although it was not advertised as such at the time, this apparently technical measure deeply transformed the policy framework and marked the move into unconventional territory. •  Third, those interventions have been remarkably cooperative and convergent. The largest coordinated reduction in interest rates in history took place on 8 October 2008 with the participation of seven major central banks. A dense network of bilateral swap agreements has insured that liquidity shortages in international banking and financial markets can be addressed speedily and efficiently. Finally, as the crisis triggered a synchronized slowdown in activity and inflation worldwide, monetary policy rates have  2  BIS Review 85/2009  converged to low and comparable levels. Remaining differences can be explained by slight differences in economic prospects and financial systems.
This confidence in the euro obliges us to act together. I would like here to welcome another recent positive commitment from political leaders: the Franco-German agreement in Meseberg. The message is clear and threefold: i. The Eurozone needs, besides Monetary Union, a strengthening of the Economic Union. If not, monetary policy would remain the only game in town, and be at risk of being overburdened by the next recession. ii. Economic Union needs public risk sharing – an enhanced ESM and a euro-zone budget – as well as private risk sharing. Let me also stress this one, adding Banking Union – with a fully credible resolution mechanism – and Capital Market Union. CMU – which we strongly advocate with President Jens Weidmann and the whole Governing Council - fortunately is in the Declaration too, with a commitment to realise “decisive progress”. iii. Europe needs a Franco-German impetus. Both countries took their responsibility, still on time. It is now up to the 19 to elaborate a common and operational package. The Euro-zone should seize this moment: it’s now or never. II. Policy-induced uncertainty  The global and European economy is confronted by two possible policy shocks: trade and fiscal policy. Since we are currently enjoying the World Cup, it seems appropriate to call these policy-induced own goals. Rise in protectionism The first of these is the risk to the global trading system of the rise in protectionism.

We are happy that during the recent years, our financial sector has also improved in every respect. This is clearly evident when we look around the financial institutions, financial markets and the developments in financial infrastructure. Within the last five years, assets of the licensed banks in the country doubled. Altogether, there has been an addition of over 400 branches of these banks. Other financial institutions including Registered Finance Companies, Leasing Companies, Insurance Companies, Merchant banks, Venture capital firms and Unit Trusts have also grown in sympathy with the banking sector. At the same time, we have also progressed rapidly in the financial infrastructure developments as well. This is particularly visible with the leap forward in the Payment System development as evidenced by the implementation of a Real Time Gross Settlement System in 2003. Now, 84 per cent of the value of country’s payments are settled through the RTGS system. In 2006, we completed the Cheque Image Truncation project, reducing the maximum cheque clearance time to 2 working days, which is another significant achievement. The Colombo Stocks Exchange remains one of the most technically advanced stock exchanges of the world. Soon, we will also have a SWIFT Service Bureau in Sri Lanka and that will help to reduce cost of financial transactions. Together with these infrastructure developments, our banking system has expanded their horizons by introducing several innovative infrastructure facilities and complex financial products as well.
For example, one would expect that different inflation rates across countries would lead to exchange rate fluctuations, so as to equalise the cost of internationally traded goods and services. If there had been a shock to inflation overseas there may be no additional inflationary consequence for the UK of our exchange rate changing to reflect that shock. But the 25% depreciation of sterling since August 2007 in my view more likely reflects a re-appraisal of the UK economy given the financial crisis and the significance of the financial sector to the UK (in the context of what was a very large and growing current account deficit). In such a case, we would expect to see a large part of the exchange rate depreciation reflected in higher prices for goods and services imported into the UK and hence higher CPI inflation. The size and timing of such an effect, however, would be very uncertain, and would partly reflect whether firms think the lower exchange rate would be sustained and what they believe the monetary policy reaction might be. I think that the depreciation of sterling since August 2007 has had a substantial – but likely temporary – impact on inflation. Estimates are uncertain but my best guess is that it is probably adding between 1 and 2 ½ percentage points to the current inflation rate.

When I addressed the invitation to Madame Lagarde to visit Cyprus a few months ago, I could not have imagined how much more complicated the situation would be today. At the beginning of the year, the economic confidence was improving and the GDP growth rate was recovering fast. The war in Ukraine however changed everything. It has first and foremost caused a humanitarian tragedy, which we, as Cypriots, can relate to since we have gone through a similar situation with the Turkish invasion back in 1974. It has also shaped an economic landscape of higher risks and uncertainties. The situation calls for a strategy that goes far beyond the financial technical sphere, reaching to the core of our European values. I am confident that once again, as we did recently with the pandemic, the Eurozone will manage to address the challenges and come stronger out of this crisis. The most recent ECB policies have successfully guided the euro area economies out of the pandemic shock with the minimum possible scarring. Both the euro area as well as Cyprus have reached the pre-pandemic real GDP level within 2021, while a similar path has been recorded in the labour dynamics with the labour force participation having reached pre-pandemic levels. This has been achieved by the formulation of ample policy support. The ECB took a series of policy decisions aimed at achieving favourable financing conditions and alleviating the economic hit on households and businesses.
For both historical and geographical reasons, our country is exposed to a considerable commercial risk in Europe, with 60% of our exports going to European countries. These European markets are no longer the most dynamic, nor will they become so in the future. Clearly, in recent years, the emerging economies in Asia have become one of the vibrant regions of the global economy. This is precisely why globalisation makes sense for an economy open to international markets, such as ours. Therefore, it is essential that we step up the diversification process so as to ensure the expansion of our export sector. It is in our own best interests to further strengthen economic relations with Asia. With our liberal philosophy and sound financial standing we have the necessary tools to pursue a policy of openness and enhance our strong presence abroad. Our monetary framework Switzerland is well-known for its stable monetary framework. Average inflation over the last 20 years has been 1.8%, and for the last 13 years, we have had price stability. We have never gone through monetary reforms as many European countries have done over the past few decades. Our monetary regime has been unchanged since 1973, when the peg to the US dollar was removed. Today, the Swiss franc is freely determined by market forces. As a representative of a country that has had floating exchange rates for over thirty years now, I can only underscore the importance of an exchange rate regime that reflects the realities of the market.

For instance, the mortgage survey recently published by Finansinspektionen identifies one such weakness: approximately half of all new mortgages are interest-only loans.2 This increases the scope for the households to take larger loans, which in turn increases the debt stock. Figure 1 shows household debt in relation to disposable income. It also illustrates how indebtedness in the household sector grows under different assumptions about amortisation. This raises a number of questions about the future. For example, how will the average loanto-value ratio in the banks' mortgage stocks develop when older mortgages are paid off and new interest-only mortgages are paid out? What will the long-term consequences of a weak or non-existent amortisation culture be for peoples' private finances, the national economy and expectations of economic policy? These are questions that we are considering and that we will analyse further together with Finansinspektionen. Figure 1 Household debt under different assumptions regarding amortisation behaviour Percentage of disposable income  Note. The figure presents a simple illustrative calculation of how indebtedness may develop given different assumptions about the households’ amortisation behaviour in the future. The figure should not be interpreted as the Riksbank’s forecast. Sources: Statistics Sweden and the Riksbank. The banks’ extensive market funding in foreign currencies makes the system vulnerable Another structural weakness in the Swedish banking system is that the degree of market funding is high. We can see this, for example, by looking at lending in relation to deposits.
Their challenge is to evolve into modern corporations that are more than family companies. They need to be run professionally by the best man for the job, and not by heirs who may or may not have inherited the business skills and acumen of the founder. Third, governments need to untangle the complicated and deeply-entrenched ties between state, banks and industry, which exist in many Asian countries, like the chaebols in South Korea, or the state-owned enterprises in China. Such industries and enterprises often account for a significant share of GDP, but they are neither subject to market discipline, nor driven purely by economic considerations. They often find it difficult to operate as efficiently as private sector firms. Banks fail to apply normal criteria in approving loans, because of political pressure or implicit state guarantees. Employees enjoy de facto life-time job security. Well-connected persons help themselves to privileges at the companies’ expense. And governments find it politically impossible to close down the operations, no matter how unsuccessful. It is essential to speed up restructuring and reforming these unproductive enterprises. In China, the government is making a massive effort to reform its SOEs. In South Korea President Kim Dae Jung is pushing chaebols to rationalise and consolidate, and change their traditional ways of doing business. ASEAN countries must not lag behind, or else it will affect confidence in their investment climate. Banking sector reforms Besides pursuing corporate restructuring, ASEAN economies must persevere to clean up and recapitalise unsound banks, and strengthen the banking sector.

Banks play a critical role in every economy. For ASEAN economies to continue to grow, they will need new investments. These investments will require financing, by sound banks able and willing to lend to sound borrowers. The immediate priority is to speed up the resolution of the non-performing loans (NPL) within the banking system. The process is underway, but is far from complete. Even today, NPLs in some ASEAN countries remain well above 20%. As in the case of corporate restructuring, effective bankruptcy laws are essential. Asset Management Companies (AMCs) need sufficient power to deal expeditiously with debts which are unrecoverable. Otherwise the banking problems will infect the whole economy, and drag countries into the same deep-seated malaise as Japan. Finding new money and writing off bad loans is the relatively easy part. It is more difficult, but equally important, for banks to put in place proper systems, structures, and prudential standards, to prevent the same problem from happening again. They need to establish rigorous credit cultures. They  BIS Review 111/2000  6  must lend based not on personal relationships, but on objective assessments of the borrowers’ creditworthiness. Many countries are encouraging bank mergers and consolidation as part of their plans to strengthen the financial sector. Mergers can help to strengthen the commercial banks, and give them the scale to compete in the globalised financial industry. However, mergers by themselves are insufficient.
As the banks largely obtain funding from loans from each other and other financial  1  Modigliani, F & Miller, M H (1958): “The Cost of Capital, Corporation Finance and the Theory of Investment”, American Economic Review  BIS central bankers’ speeches  3  institutions, the lack of confidence led to a drying-up of liquidity within both the financial and real economies. The crisis was met in a somewhat similar way by the United States, Europe and Sweden On the whole, the financial crisis was met in a similar way by all OECD countries. The automatic stabilisers were put to work in fiscal policy, and many countries launched targeted fiscal policy stimulation measures to break the fall. The central banks reduced interest rates to very low levels. Almost all economies also took measures to prevent even deeper problems in the financial sector. In the United States, where the crisis originated, the Federal Reserve and other authorities provided emergency liquidity assistance to the banks and other parts of the financial system. The Department of the Treasury’s TARP (Troubled Assets Relief Program) purchased problem assets from banks and other financial institutions. The guarantee programme for the banks’ deposits was expanded. In addition, in 2009, a stress test was carried out of the 19 largest US banks as of the spring of 2009. Ten of these banks were deemed to need new capital, which they also succeeded in raising. It seems likely that this test helped restore confidence in the equity/assets ratios of the US banking system.

This kind of contagion can happen on both the asset and liability sides of a bank’s balance sheet. Deposit and lending surpluses in different parts of the world are managed on a global interbank market. The banks’ assets thus largely consist of loans to other banks. The banks’ liabilities largely consist of loans from other banks. The banks are dependent on confidence – illustrated, in its most classic form, by a bank run. Rumours that a bank is facing problems can lead people to want to take their money out, which may give the bank problems – even if it had no problems to start with. So banks have a series of characteristics that distinguish them from normal companies. If a normal company is unable to meet its payments, it will have to file for bankruptcy. If a bank defaults on its payments, the consequences for the financial system – and the real economy – can be enormous. This means that it is difficult to let banks go bankrupt, at least if these banks are large and times are troubled. So other disciplinary mechanisms must be found – such as tougher regulation and thorough supervision. Special legislation covering banks in distress is also needed. Of course, bank regulations are primarily a way of allowing the public sector to safeguard the public interest. But the regulation of banks is also a way of mitigating principal-agent problems between a bank’s management and borrowers on the one hand, and the bank’s owners and lenders on the other.