samchain/econo-pairs-v1 huggingface dataset:
An independent and flexible monetary policy has been able to underpin needed restructurings in the Norwegian economy. Norges Bank’s mission is to ensure a well-functioning monetary system. Our success is a fundamental precondition for an efficiently functioning economy. The payment system must provide for safe and fast payments. People must also be assured that the value of money does not suddenly change. Safeguarding the value of money, which today is expressed in the form of low and stable inflation, is therefore at the core of the central bank’s social mission. The payment system is changing rapidly. The future of money and payments is still unknown, but the central bank’s primary function remains steadfast: To ensure confidence in the currency unit and the value of money. Come what may! 16

Such a scenario could prove attractive both for capital exporters (through better returns on excess savings) and capital importers, which may not have the option of isolating themselves from international capital markets anyway. Experience shows, however, that an open international financial system is not inherently stable and, therefore, very dependent on a strong infrastructures and conditions. The move towards a financially open world would, at the very least, have to be supported by robust arrangements on international liquidity provision. Pending ambitious reforms, a lot can still be done to provide investors with stable stores of value. One very promising avenue would be, for countries which have surplus savings, to develop their own internal stores of value by expanding the range of safe and liquid financial assets available to domestic and international investors. By doing so, they would achieve several goals at the same time. They would bring more efficiency in the financing of their own domestic needs. They would provide their own investors with a broader range of choices. They would also eliminate some of the currently existing incentives to export capital in order to protect its value. They would contribute to reduce the “asset shortage” with all its negative consequences, including international imbalances and the financing of asset bubbles. Financial development in many countries would address both the causes of international imbalances and some of the roots of the financial crisis. References Adrian, T. and H. S. Shin (2008), “Liquidity and Leverage”, Federal Reserve Bank of New York Staff Report No 328.
At the same time, we have to recognise that, when executing lending policy, a central bank functions much like a private financial intermediary. Of course, a central bank loan creates money, which is not the case for private loans. But the lending side of the operation is essentially the same. The granting of private credit is accompanied by restrictions imposed on the borrower which limit its ability to take risks that might endanger the value of the loan. Likewise, when a central bank provides credit against collateral, it must follow up with a frequent re-evaluation of the credit conditions so as to safeguard its funds and make sure its commitment is not abused. Also, by the very act of declaring an asset eligible for monetary policy operations, a central bank has to be aware that it might affect its price. This argues in favor of a graduated system of collateral valuation, in which haircuts reflect the underlying fair value along a continuous scale, possibly with less threshold discontinuity than at present. These are issues for further analysis. 2. In any case, while central banks will be called upon to support market functioning in liquidity crises when the integrity of the transmission mechanism is threatened, they cannot be asked to rescue insolvent issuers – whether private or public institutions. In line with this principle, the SMP is meant to repair the integrity of the transmission mechanism, not to finance public debt. Conclusions Let me briefly summarise the thrust of my message.

Norges Bank’s mandate provides a basis for the conduct of monetary policy: “Monetary policy shall be aimed at stability in the Norwegian krone’s national and international value, contributing to stable expectations concerning exchange rate developments. At the same time, monetary policy shall underpin fiscal policy by contributing to stable developments in output and employment. Norges Bank is responsible for the implementation of monetary policy. Norges Bank’s implementation of monetary policy shall, in accordance with the first paragraph, be oriented towards low and stable inflation. The operational target of monetary policy shall be annual consumer price inflation of approximately 2.5 per cent over time. [...]” The responsibility for implementing monetary policy is delegated to Norges Bank pursuant to the Norges Bank Act and the appurtenant Regulation. The Bank sets interest rates based on our interpretation of the Regulation. In our interpretation, we give weight to the Government’s rationale for the Regulation, to the purpose as expressed in the first section, and to our knowledge about the relationships between the interest rate, the exchange rate, output, employment and inflation. The first sentence in the mandate refers to the value of the krone. Stability in the krone’s internal value implies that inflation must be low and stable. Low and stable inflation contributes to economic growth and to stability in financial and property markets. The Regulation also states that monetary policy shall be aimed at stability in the Norwegian krone’s external value, contributing to stable expectations concerning exchange rate developments.
That is a lot of ifs and, as I have noted, a further provision is that if the standstill is supported by IMF lending into arrears, it would need to be subject to strict conditionality. But again these conditions could usefully borrow from the corresponding provisions attached to corporate workout standstills. In both cases, the standstill should be subject to a strict time limit; it should allow for a full release of all relevant information from debtor to creditors on a timely basis; it should facilitate equitable treatment of similar types of creditors (for example through the formation of  6  BIS Review 67/2001  bank creditor and bondholder committees); it should provide for the seniority of any new money; and above all it should deliver the rapid presentation of a restructuring plan to creditors. What this means is that any sovereign debt standstill would need to be orderly, efficient, equitable and expeditious. Easier said than done, of course, especially given the fact that generally no single organisation represents the disparate group of private creditors. But, as with corporate workout standstills, the key is to reduce the incentives for creditors to rush for the exits. Of course, some have argued that attempts to negotiate a standstill could have the opposite effect, in other words they could prompt a rush for the exits. But longer-term investors benefit from country runs being forestalled, so the net effect might be a beneficial switch from short-run to long-run investors.

My speech this morning, therefore, provides an opportunity to signal the Bank’s support for INSOL’s mission to take a leadership role in international insolvency and credit issues and to bring about greater international co-operation among the main players. The growing interest by a number of international organisations in the design of orderly and effective corporate insolvency regimes, and in the encouragement of greater co-operation in cross-border corporate insolvencies, suggests you have been successful in that objective. I think this has been greatly assisted by the important work which the INSOL Lenders Group has been co-ordinating in developing a set of principles governing corporate workouts at the pre-insolvency stage. But corporate workouts represent just one strand in financial restructurings more generally. There are two others I want to cover; and these are, first, restructurings of financial institutions, including banks, and, second, sovereign debt workouts. Indeed, in many instances, restructurings in the corporate sector will need to proceed in tandem with those in the financial and sovereign sectors. I would argue that, in all three cases, a collective approach by the different participants in the private and public sectors, and effective co-ordination among creditors and debtors, should help to preserve value. So I would like to consider today the extent to which these differing approaches raise common themes, and also whether there are distinguishing features which could affect the interactions between the three strands.
There is one question that has to be answered by 8am on Monday morning – when the depositor asks: “Is my money safe”, you have to be able to say yes, no hesitation or qualification. The reason I have described this is that, while we have a resolution regime, and we are ahead of many other countries in this respect, it is a regime for small and medium-sized banks. We are working very hard to solve the too important to fail problem for big banks. But, until we do so, we haven’t solved the big problem that we have seen in the last four years, the dependence on public money. A healthy industry is one in which within an industry that is fundamentally sound, companies can fail, and new companies can enter to replace them without an unacceptable cost to society. That will be the objective of the new Prudential Regulation Authority. From a resolution perspective, we need a regime in which failure is orderly, and the cost of failure is borne by the capital holders and, if necessary creditors of the failed bank. This is a big issue on which a lot of work is currently underway. Very important changes are under way in financial regulation. These put the stability of the financial system at the heart of the objective of regulation.

Bandid Nijathaworn: The future of monetary policy Remarks by Mr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at “South East Asia Central Banks/Bank for International Settlements (SEACEN/BIS) Seminar on Central Bank Challenges in Emerging Market Economies in the Post-Crisis Era”, Kota Kinabalu, Malaysia, 21 January 2010. *  *  *  First, let me thank SEACEN and the BIS for asking me to lead off the discussion on this important topic. For the SEACEN economies, I think two important questions stand out. The first is what went wrong with monetary policy and what can we learn from it? And the second is what more can we do to improve our understanding of monetary policy so that long-term price stability can be assured while the risk of financial instability is avoided? Although the current global financial crisis has been a dramatic experience for central banks, it also offers an opportunity to reassess both the intellectual underpinning and the practical implementation of monetary policy. As we all know, monetary policy in the last fifteen years did cover almost the whole of a global business cycle, starting from the period of the socalled “great moderation” when there was a perceived end to economic volatility with interest rates remaining low for an extended period, to the current global financial crisis that saw aggressive use of monetary policy by the major central banks to combat economic contractions with near-zero interest rates and the use of unconventional measures.
The model is closed by either a level rule 𝑖𝑡 = 𝜌𝑖 𝑖𝑡−1 + 𝜑𝜋 𝜋𝑡 + 𝜑𝑦 𝑦̃𝑡 or a difference rule ∆𝑖𝑡 = 𝜑𝜋 𝜋𝑡 + 𝜑∆𝑦 (𝑦̃𝑡 − 𝑦̃𝑡−1 )  19  All speeches are available online at www.bankofengland.co.uk/news/speeches  19  Endnotes 1  The policy decisions are explained in greater detail in the Bank’s February 2022 Monetary Policy Report. 2  Owing to some statistical weaknesses, the official series for the UK terms of trade, which is based upon the import price time series, does not reflect this deterioration. The discussion in the text is based on an economic assessment of the evolution of UK import and export prices over recent months. ‘Divine coincidence’ here refers to the property of new Keynesian macroeconomic models that implies there is no trade-off between the stabilization of inflation and the stabilization of the welfare-relevant output gap in the conduct of monetary policy. See Blanchard and Galí (2007). See the Bank’s November 2021 Monetary Policy Report. 3  4 5  7  We do not have comparable survey results for the period prior to the financial crisis, so a longer time series comparison is not possible. How one such wage equation accounts for the movements in underlying pay growth since 2011 is shown in Chart 3.7 of the Bank’s February 2022 Monetary Policy Report. For an overview, see Issing (2002). 8  For a critical review of this characterisation, see Currie (1985). 9  For an example, see Svensson (1999).

In some cases, to return to profitability and prosperity, the restructured bank will need to get rid of its most troubled assets. In the Swedish crisis of the 1990s, this was achieved by splitting the most troubled banks into a good part that we sold, and a bad part that we wound down and sold separately. If you opt for this solution, make sure that an independent asset management company, staffed with people with the right experience in handling troubled assets, runs the bad bank. Profit maximisation also implies ensuring that the restructured bank is out of the reach of political influence. This is important for two reasons. Depositors and lenders of the bank may exert influence on politicians to run the bank in a manner that is favourable to them. This may of course compromise profit maximization. Also, public servants are typically not trained to manage banks. But apart from lacking the specific skills, there is also an obvious risk that running a bank will interfere with the regular operations of the public authorities, although these are probably not regular at all during a banking crisis. 6  BIS Review 50/2010  If you get these things right, you may secure that upside that I just mentioned. And you may recoup some (or perhaps even all) of the costs of the banking crisis. For instance, in the Swedish banking crisis of the 1990s, the government capital injections into the distressed banks rendered healthy profits for the taxpayers when (some of) that equity was eventually sold.
These can only be partially explained by differences in the level of risk taken by the banks. Cf., for example, Basel Committee on Banking Supervision, Regulatory consistency assessment programme (RCAP) – Analysis of risk-weighted assets for market risks, January 2013; cf. also EBA, Interim results of the EBA review of the consistency of risk-weighted assets, 26 February 2013; Barclays, The dog that dug, 21 September 2012. Studies at national level have also shown that model-based RWA are too low in some cases. Cf. FINMA Annual Media Conference, “Models and their limitations”, 31 March 2015. BIS central bankers’ speeches  1  To address this problem, regulatory initiatives have been launched at international and national level. At international level, the Basel Committee on Banking Supervision is fundamentally revising the standardised approach. The Committee is also examining the introduction of a floor for internally modelled RWA based on this revised standardised approach. One important objective of the floor would be to ensure that capital requirements based on banks’ internal models do not fall below a prudent level. At national level, FINMA – together with the big banks and with the support of the SNB – has conducted a comparison between RWA calculated using the model-based and standardised approaches. The results of this comparison, in addition to the measures already taken by FINMA and those expected at the international level, will be taken into account by a working group led by the Federal Department of Finance.

Resilience needs to be further improved for three reasons: First, the big banks’ loss potential relative to their capitalisation continues to be substantial. Second, while the Swiss big banks’ risk-weighted capital ratios are above the average for large globally active banks, the same cannot yet be said for their leverage ratios. Third, it can be expected that regulatory developments at both international and national level will result in increased capital requirements. 1 The Swiss big banks should prepare for these developments. RWA problem identified, but not yet resolved In the capital regulation of banks, risk-weighted assets (RWA) play a key role. As mentioned in previous Financial Stability Reports, both markets’ and authorities’ confidence in RWA calculated using banks’ internal models has steadily declined. A number of studies have shown that, in some instances, model-based RWA do not properly reflect a bank’s economic risks.2 As a consequence, capital ratios calculated using model-based RWA may overstate the true level of resilience. 1  Based on the review of the Swiss “too big to fail” regulations by the group of experts on the further development of the financial market strategy (Brunetti group of experts), the Federal Council has instructed the Federal Department of Finance to prepare legal adjustments, which primarily concern more stringent capital requirements. Cf. media release of the Federal Council, 18 February 2015. 2  For instance, international studies have revealed significant differences in RWA between banks using the model-based approach.
Stabilising inflation stems from the objective of price stability in the Sveriges Riksbank Act. Stabilising resource utilisation stems from the emphasis in the preparatory works for the Sveriges Riksbank Act, that the Riksbank, without prejudice to the price stability target, should support the goals of general economic policy with a view to maintaining sustainable growth and a high rate of employment. House prices and household debt The arguments for raising the repo rate more than is justified by inflation and resource utilisation have emphasised developments in house prices and household indebtedness. There have also been references to potential financial imbalances building up. However, these arguments do not show what effect the repo rate is expected to have on house prices and indebtedness, or which financial imbalances are referred to. Nor is it clear what effects and risks might be involved, or how we can evaluate the effects and risks in relation to the cost of inflation and resource utilisation being too low. As household debt mostly consists of mortgages and these are used to buy housing, house prices and household debt are really two sides of the same coin. If house prices increase, then household debt increases. If we want household debt to increase more slowly, then house prices must increase more slowly. Thus, slowing down the increase in house prices and the increase in household debt is essentially the same thing. Regardless of whether or not these factors are a problem, the repo rate would appear an unsuitable instrument for influencing house prices and debts.

Real prices for office premises in central locations (index 1981=100) 500  450  400  350  300  250  200  150  100  50  Stockholm  Göteborg  c05 de  03 c-  de  c04  02 cde  de  c01  c00 de  de  98  c99 de  97  cde  de  c-  96 cde  c95  c94 de  de  92  c93 de  cde  de  c-  91  90  c89  cde  c88 de  de  86  c87  c-  de  c-  85 de  de  c84 de  c83 de  c81 de  de  c82  0  Malmö  Sources: NewSec AB and the Riksbank  6  BIS Review 105/2006  3.
Others blame the lack of instruments allowing us to tackle asymmetric shocks that may arise, and underline the lack of flexibility or the absence of mobility of the European labour force. Others claim that the  BIS Review 11/2003  3  presumed economic divergences and structural gaps among euro area countries are too large to ensure a viable monetary union. How do we respond to these important objections? (1) It is not disputable that for EMU to function well, Member States, especially the major ones in terms of GDP, must be aware of the spill-over effects that national economic policies may trigger. The existence of spill-over justifies the implementation of a close co-ordination between national economic policies. This is embodied in the Treaty itself, which obliges Member States to consider national economic policies “as a matter of common concern” and subject them to a multilateral procedure. Practically, member States have designed institutions and mechanisms to promote appropriate co-ordination. We can now say that EMU has in turn been beneficial to the European economic and financial integration as a whole. Indeed, a coherent operational framework has been provided for the co-ordination of economic policies through close mutual surveillance (under the responsibility of the “Euro Group” and the Ecofin Council) and through the implementation of the Stability and Growth Pact. Moreover, the Broad Economic Policy Guidelines, discussed each year by the Heads of States and Governments, help monitor macroeconomic and structural developments in the Member States.

The third way of raising potential output growth is to promote ways to boost gains in labour productivity: This can be achieved by increasing competition, encouraging enterprise and innovation, and improving the workforce’s skills. Indeed, on the basis of hours worked, productivity in the EU reached in 2001 83% of the level of that in the US, which points some room for improvement. 6  BIS Review 11/2003  That strategy should be pursued whilst increasing the overall competitiveness of our economies The Euro area displays sound macroeconomic fundamentals and satisfying price competitiveness. Sound macroeconomic fundamentals make the Euro area an attractive place to invest in : no major imbalances may be observed contrary to other major areas. Indeed, the Euro area provides for a low and stable inflation environment, roughly balanced external accounts, abundant private savings, and sound financial systems. Then, in terms of real effective exchange rate, the Euro area has constantly gained in competitiveness rd over the past few years. In the 3 quarter of 2002, even though the Euro real exchange rate deflated by unit labour costs in total economy versus the rest of industrialised countries appreciated by 5.4% year-on-year, it is still below its long term average (1987-2001) by 12.3%, according to the European Commission calculations.