samchain/econo-pairs-v1 huggingface dataset:
It is reasonable to ascribe this difference to petroleum revenue spending. In principle, this development should have occurred. If we are to benefit from the petroleum revenues, they must be used to stimulate domestic demand. The wealthier we are, the higher demand for services is. Many services cannot be imported, but must be provided domestically. This requires a higher share of employment in sheltered sectors. The question is how rapidly and to what extent this shift should occur. Changes in industry structure involve costs in that the capital invested may remain idle and labour resources may be used less efficiently in periods. It may take time and be difficult to re-establish the use of these resources. Restructuring costs are probably so substantial that we should take them into account when we decide how fast petroleum revenues should be used in the Norwegian economy. An economist at Norges Bank has looked at the level of petroleum revenue spending that minimises restructuring costs, and in that respect represents the most efficient use of revenues. In his analysis, Farooq Akram7 assumes that petroleum revenues are not permanent, and that the mainland economy will continue to expand. This implies that the return on the Petroleum Fund will eventually decline as a share of national income. If we use the entire return as stipulated in the fiscal rule, earlier changes in industry structure will have to be reversed in the long run. Production resources will have to be shifted back from the sheltered to the internationally exposed sector.

In that case, the country is poorly poised to cope with an end to easy money. The economic literature includes many studies that look at the relationship between income from natural resources and economic growth. An article by Jeffrey Sachs and Andrew Warren entitled “The curse of natural resources”2 sets the basic tone: Countries with large income from natural resources  1  Hermod Skånland, ”Norge og oljen – gamle eller nye utfordringer”. (Norwegian only). Lecture, 2 November 1988. 2  Jeffrey D. Sachs and Andrew M. Warner, The Curse of Natural Resources. European Economic Review 45 (2001), pages 827-838. 1/8  have generally recorded weaker economic growth than comparable countries. Professor Thorvaldur Gylfason illustrates this relationship for a large selection of countries in an article published last year.3 Both Gylfason and other authors4 in this field point to Norway as an exception to this general rule. Norway’s management of its petroleum revenues is often referred to as an example of successful organisation. 5  The construction of the Petroleum Fund In 1990, Norway established a transparent system for managing government petroleum revenues. All the revenues are transferred directly into a foreign currency fund, the Petroleum Fund. The Storting (Norwegian parliament) must adopt a resolution on any use of the capital in the Fund. Spending will be prioritised in the same way as for other government spending. There is no hidden use of revenues, or any use for special purposes. The Fund is strictly and effectively “out of bounds” to special interests.
The ultimate success of QE will depend on whether the monetary injection and increased asset prices stimulate nominal spending and so help achieve the 2% inflation target in the medium term. Much of the impact of our asset purchases to date is to still to come through and so it is too early to judge their final impact. However, in that respect, it is perhaps noteworthy that nominal GDP in the UK grew at an annualised rate of around 4% during the third and fourth quarters of 2009. These estimates are still relatively early and so subject to considerable uncertainty. But there are perhaps some tentative signs that nominal spending in our economy is starting to accelerate. Conclusion It is exactly a year since the MPC started its programme of large-scale asset purchases. The move to quantitative easing met with mixed reactions. Some commentators claimed that it would end in inflationary tears. Many academics questioned whether it would have any impact at all. From the outside, you may imagine that this was a difficult decision for a committee of nine, conservative central bankers to reach. In fact, from my perspective the decision was  6  BIS Review 29/2010  relatively straightforward. The inflation target provides a clear, numerical objective for policy. The outlook for inflation suggested further monetary stimulus was necessary to achieve that target. With Bank Rate close to its lower bound, this stimulus had to be implemented via alternative means.

A key challenge confronting macroeconomic policy in Thailand is to safeguard the pace of recovery while maintaining macroeconomic stability and financial discipline, and at the same time continuing with the essential reforms. Past records Before moving on to discuss the challenges facing Thai monetary policy, I would like to review some of the notable progress of the last few years. There have been gains that should further be expanded. Macroeconomic and financial stability has been restored. Inflation remains low and stable. Thailand’s international reserve position is healthy. Surpluses in the external current account of these few years have been matched almost entirely by falls in external debt, especially short-term debt. Such reversed flows have been instrumental in avoiding a real currency appreciation and loss of competitiveness. BIS Review 70/2001  1  The surplus on the external current account is expected to continue this year, although at a somewhat lower level. This would allow the debt stock to fall further as scheduled repayments are made. About 50 percent of the existing non-bank private debt stock represents debt contracted after the crisis, including some rollovers which were done under new contract. This means that private sector in Thailand currently has no difficulties in gaining access to the international financial markets. Reflecting this, the spreads of Thai Government bond yields over US Treasuries have narrowed while Thailand’s sovereignty credit ratings remain stable. The financial system has now stabilized, but much work still lies ahead.
5 The evidence from the Bank of England’s Agents and recent employment surveys is that the labour market in the UK has stabilised and that labour demand in the private sector may have already started to pick up. Companies also seem to have adjusted quickly to a lower level of demand and activity in the recession, and the most recent surveys do not point to an unusually large margin of spare capacity remaining within firms. For example, the latest CBI survey shows 62% of manufacturers reporting some spare capacity – which is virtually in line with the average for the decade before the financial crisis. 6 The evidence on wages and prices is also consistent with the view that spare capacity is not exerting as much downward pressure on inflation as the MPC expected last summer. In the manufacturing sector, underlying wage growth is back up to the 4–5% level already, though is more subdued in the services sector. And after quite widespread pay freezes last year, the latest pay settlements data from Income Data Services show that the most popular range for pay settlements is currently 2–3%, which is where four out of ten pay settlements are now being struck. If the recovery continues and headline inflation remains relatively high, there may be a further upward drift in pay growth in the private sector, offsetting some of the downward pressure on wage growth from the public sector.

Firms are required to have a much more comprehensive definition of what constitutes operational risk, including not only processing errors, but also business disruptions, legal and compliance risks and fraud, whether from internal or external sources. As with market and credit risk, firms are expected to supplement the management of operational risk at the business line level, with an independent operational risk management function that is responsible for establishing firmwide policies for measuring and managing operational risk. Finally, firms are required to bring together quantitative elements, such as internal and external loss data, with qualitative elements, such as control self assessments and scenarios, to arrive at a reasoned assessment of their exposure to operational risk losses across the firm. Internal rating systems, credit risk mitigation and operational risk measurement are merely a few of the examples of how Basel II has already spurred improvements in bank risk management and how final implementation will bring further discipline to risk management practice. Supervisors also will have to make judgments about the effectiveness of the models and associated procedures that banks intend to use for regulatory capital purposes. A key element in making such judgments is the so-called “use test” which requires that banks’ regulatory capital models build on the models that they use for internal risk management purposes. This is a necessary condition for supervisors to have confidence in the integrity of banks’ regulatory capital models. Additionally, Pillars II and III give added impetus to comprehensive improvements in bank management practice.
We must ensure that this never happens again. 3/5  BIS central bankers' speeches  But that should not discourage us from harnessing and redirecting such creative forces to address today’s most urgent global challenges, and in the process, restore trust and confidence in the financial industry. New paradigms in policymaking This brings me to the role of policy. In recent years, global standard setters including the Basel Committee on Banking Supervision, the Insurance Association of Insurance Supervisors and the Financial Action Task Force, have heeded the call to promote a better balance between the objectives of financial stability, financial integrity and financial inclusion. This has resulted in important strides taken to encourage a more proportionate regulation. Despite this, a recent report by the Financial Stability Board disclosed that as of 2017, the derisking phenomenon continued at the global level, affecting remittance service providers and many poor countries that rely on remittances from abroad. Clarifying regulatory standards is an important step, but clearly this alone is not enough. So where to from here? First, taking a cue from Albert Einstein who famously said that we cannot solve our problems with the same thinking we used when we created them, there is a need for policymakers to create safe harbours for experimentation. A number of regulators have introduced regulatory sandboxes that have helped create a virtuous cycle of innovation and sensible regulation, while isolating risks.

[3] The evolution of nominal interest rates is covered in my speech entitled “The yield curve and monetary policy” at the Centre for Finance and the Department of Economics at University College London, 25 November 2019. [4] See the speech by Isabel Schnabel on “The ECB’s response to the COVID-19 pandemic” (16 April 2020), the blog post by Luis de Guindos and Isabel Schnabel on “The ECB’s commercial paper purchases: A targeted response to the economic disturbances caused by COVID-19” (3 April 2020) as well as my own blog post on “The monetary policy response to the pandemic emergency” (1 May 2020). https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html  13/14  5/19/2020  Disclaimer Please note that related topic tags are currently available for selected content only. Copyright 2020, European Central Bank  https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html  14/14
The international recovery is progressing It is natural to begin a survey of inflation perspectives by touching upon the international economy. At the end of 2002, the Riksbank and other forecasters expected world economic activity to embark on an upturn. However, during spring 2003, we gradually had to revise down our growth forecasts. While a recovery in the world economy was still expected, it was now judged to occur at a later stage. The weak growth, however, prompted a shift to more expansionary economic policy in many countries. Both the European Central Bank (ECB) and the US Federal Reserve, as well as the Riksbank and other central banks, continued to cut key interest rates to historically very low levels. However, most factors now indicate that both the Riksbank and other forecasters were somewhat overly pessimistic in connection with the Iraq war, particularly regarding the view of economic developments in the US. During the second half of 2003, we have had reason to again revise up our growth forecasts for the world economy. What has happened then since December, when the Riksbank published its latest Inflation Report and forecasts? The most apparent and perhaps the single most important change in the world economy has been the sharp depreciation of the dollar, mainly against the euro. It is likely that the dollar’s weakening against both the euro and the yen is an effect of the US current account deficit, coupled with a growing deficit in the US federal budget.

As in the past, we shall present our June and December inflation forecasts at our media conferences. In March and September, the inflation forecast will be published within the context of the press release on the quarterly assessment of the situation. Gold sales On 22 September this year, the Swiss people and the cantons rejected both the gold initiative and the counter-proposal. The National Bank, however, continues to implement its programme for the sale of half of its gold reserves. For the time being, the surplus gold reserves will still figure in our balance sheet. To date, approximately 660 tonnes of a total of 1,300 tonnes of gold have been sold. We see no reason to change our strategy: these assets are surplus reserves which are no longer needed for monetary policy and which may be put to another use. In order to use the reserves for other purposes, the gold is sold and the proceeds are invested in securities. We invest the proceeds from the gold sales in Swiss and foreign securities. The portfolio from the surplus reserves is thus less exposed to exchange rate fluctuations than the foreign exchange reserves. The earnings deriving from invested gold proceeds flow into the SNB's income statement and thus become available for profit distribution in favour of the Confederation and the cantons. As from 2003, annual profit distribution will amount to Sfr 2.5 billion. The profit distribution agreement concluded with the Confederation last April need not be revised.
Let me now say a few words about Iceland’s financial crisis, as it puts the issues raised so far into sharp focus, but then lead us into the crisis in EU banking. Iceland was already on its way into a recession when its three cross-border banks failed in the first week of October 2008. This was partly unrelated to the banking collapse and followed the turn of the domestic economic cycle, after an unsustainable boom and serious overheating during 2005–2007 and a currency crisis in the first half of 2008. . The proximate cause of the demise of the banks was the post-Lehman run on foreign exchange liabilities, which amounted to 7.5 times Iceland’s GDP, while their total balance sheets were 10 times GDP. The banking collapse and the associated wealth loss and further depreciation of the currency deepened the recession. Two separate but interrelated sub-stories of the large Icelandic saga were converging in a tragic grand finale that autumn. These were: 1. Iceland’s boom-bust cycle and problems with macroeconomic management in small, open, and financially integrated economies. (Net capital flow problem and fundamentally nothing new). 2  BIS central bankers’ speeches  2. The rise and fall of three cross-border banks operating on the basis of EU legislation (the European “passport”). (Gross capital problem and unique in Icelandic history – and, at the time, in EU history).

Although the euro will only become available in the tangible form of banknotes and coins in over two years’ time, there is already a feeling that the euro is accepted by the majority of the population and that the benefits of the euro are appreciated. The euro, as you in Switzerland are particularly well placed to observe, is playing an increasingly important role not only within the euro area, but also beyond it. Monetary policy with a view to price stability European Economic and Monetary Union is a great opportunity to achieve the objective of sustained and widespread price stability in Europe. Monetary stability is the best contribution that monetary policy can make to lasting economic and employment growth. Stable prices promote the efficient allocation of scarce resources and also help to guide expectations. 1  BIS Review 99/1999  For these sound reasons, the Treaty establishing the European Community specifies the maintenance of price stability as the primary objective of the European System of Central Banks (ESCB) and therefore of the Eurosystem. The Governing Council of the ECB does its utmost to fulfil this function. In this respect, it endeavours to communicate its monetary policy to the public in a comprehensible manner. In particular, the Governing Council of the ECB has published a quantitative definition of its primary objective of price stability. This helps provide economic agents with clear guidance on expectations of future price developments.
As a consequence, the stock of reserves increased and exceeded the level the banks would have needed to hit the targets they would have chosen voluntarily. Because banks then had no control over the rate of expansion of reserves, the system of reserves averaging was suspended. Banks were instead remunerated at Bank Rate on any level of reserves.7 That means that there is no incentive for any commercial bank to lend in the market at less than Bank Rate. As a result, the current system should set a “floor” on money market rates, at Bank Rate (Chart 4). Similar mechanisms are currently employed by the Federal Reserve in the US, and the Swedish Riksbank. In principle, banks could have continued to set monthly targets and – to the extent that the MPC’s asset purchases supplied reserves in excess of these targets – the Bank could have borrowed them back through OMOs. But the Bank judged it better not to borrow reserves in increasingly large quantities at the same time as the purchase programme grew. While this is an easy and effective way of implementing monetary policy at the moment, there are drawbacks to this “floor” system. For example, in order to ensure overnight rates settle at Bank Rate, the Bank’s supply curve needs to intersect the commercial banks’ demand curve where it is infinitely elastic.

These two examples are of course extremely simplistic, and are not realistic parameterisations of the Bank’s actual RSS. In broad terms, the elasticity of the Bank’s RSS is pinned down by three broad considerations. First, the Bank sees merit in allocating some funds regularly against wider collateral, to ensure counterparties remain familiar with the auction structure and continue to participate. Second, the Bank should not undermine the incentives to manage liquidity prudently. And third, the auctions should permit an increased allocation against wider collateral to the system in the face of adverse liquidity shocks and the associated heightened demand for liquidity. While the principles underlying the Bank’s RSS are clear, the precise configuration of the RSS is not revealed to the market, so reducing the scope for firms to game the Bank, and encouraging them to bid according to need. The Bank’s supply curve should be continuous but otherwise need not be linear. In particular the Bank can use the results from each operation to determine the degree of stress in the market and hence adjust the scale of the operations accordingly. Equilibrium The equilibrium point, which pins down the clearing spreads and the share of funds allocated to the two collateral sets, is determined by the intersection of the observed demand curve, and the Bank’s RSS. Chart 7 illustrates that using our hypothetical auction bids from Table 1 above, and three hypothetical linear RSS schedules. In case of intersections such as those given by curves A and B, a unique equilibrium is well defined.
T-copying: the payer bank sends a payment order for the entire amount to the payee bank, with a copy to the data centre or the settlement bank, which sends a confirmation to the payee bank when settlement has occurred. BIS Review 7/2000  8  Thus, a delayed or rejected netting - resulting from payment problems in one bank - can cause serious problems for other banks, at any rate if the netting is prolonged until the following day. In addition, there are no exposure limits or transaction limits for this netting system. The system really does not live up to its name, because it involves both small and large-value transfers. As I pointed out previously, this may call for us to place stricter requirements on this clearing system than what we would demand if only retail payments were involved. If it should turn out that the bank responsible for the delay in the mass settlement really is insolvent, then we cannot rule out that the other banks will incur such sizeable losses that systemic problems may arise. We have very roughly estimated that the bilateral (gross) exposure may exceed NOK 5bn in certain settlements. However, this situation will soon be improved when the netting is given legal protection. This may reduce the total maximum loss to the amount of the multilateral net debit of the insolvent bank.

The key question from a financial stability perspective is whether this process will proceed in an orderly manner. A major destination of funds searching for yield, namely emerging market bonds, were particularly exposed to increased volatility over the recent weeks (as shown in the chart on the right on slide 5). While spreads widened, they still remained very narrow. While the longer-term narrowing of spreads on emerging market bonds over the past couple of years has to a considerable extent reflected the improved fundamentals, including substantially reduced indebtedness in emerging market economies, it cannot be excluded that some mis-pricing of risk will be exposed when capital inflows are reversed. The turbulence in March in the Icelandic financial markets, although contained, reminds us that vulnerabilities exist in parts of the world financial system. 4. Euro area macro-financial environment  Let me now turn to the euro area macro-financial environment, focusing on developments in the corporate and household sectors that are of particular relevance for the outlook for financial intermediaries’ credit portfolios. The balance sheet of the euro area non-financial corporate sector has strengthened significantly over recent years following notable improvements in profitability as well as debt restructuring efforts. Looking forward, however, a number of risks could be looming. The chart on the left on slide 6 shows that after several years of decline, corporate sector borrowing in the euro area has picked up considerably over the past year.