samchain/econo-pairs-v1 huggingface dataset:
Fortunately, we need to adopt much less drastic measures than those countries that have had to make deep cuts in public sector staffing levels, wages and social benefits in order to stave off the financial collapse of the state itself. And yet, people in Malta continue to expect the Government to hand out money it does not have. This attitude must change, for not only can it lead to bankruptcy, but it is also indefensible on moral grounds. Politicians, trade unions, NGOs and other opinion shapers must explain that we do not have money for everything and that you cannot have gain without pain. The intelligent thing to do is to work together so as to minimize the pain and then ensure that it is equitably shared. In my view, the priority of the welfare state should be to provide equal opportunities for all, but a safety net only for those who need it most. Universality – dispensing free goods and services to all irrespective of income – is a wasteful and unaffordable principle. In the words of the renowned economist, Jeffrey Sachs, “Even playgrounds should collect tolls, when it is billionaires who are playing in the sandpit.” The social welfare system, including health care, has long been identified, including by the European Commission and the IMF, as offering the greatest potential for savings. Effective measures implemented elsewhere which could be adopted range from user fees for certain public services to policies designed to make work pay.

First, by boosting incomes in retirement it will help support a large share of the population as it ages, reducing the burden that currently falls on the unfunded pay-as you-go system. Second, if individual contributions are linked more closely to individual payouts, this will encourage private saving, which, as we have seen, is necessary to close the saving/investment gap. Finally, if individuals perceive a closer link between their contributions and their retirement income, this should help curb the evasion of social security payments. There is little room for tax increases Fiscal consolidation, therefore, is desirable to help correct the economy’s external imbalance; to put public finances on a sound footing while coping with the costs of population ageing; and, above all, to maintain credibility and investor confidence, which are prerequisites for growing the economy. Now deficit reduction is typically achieved through a combination of increased revenue and expenditure cuts. As for the former, relying mainly on higher taxation cannot be an option at this juncture; besides, it generally distorts the efficient allocation of resources. Higher indirect taxation tends to push up the price level and, hence, harms competitiveness, while higher taxes on income depress economic growth. Neither, of course, is this a time for cutting taxes. An option which is at once fiscally beneficial and socially desirable is to close remaining tax loopholes and to engage in a more aggressive pursuit of tax evasion and benefit fraud. We need to cut spending, while rebalancing it The only real alternative, however, is to cut public spending.
In the UK and Australia, for instance, house price inflation moderated, as I mentioned, when the central banks there began to raise key interest rates, but there has not been a general fall in house prices. In a scenario where the central bank begins to raise key interest rates to slow down a strong economy and market interest rates follow these upwards, it is plausible that the adjustment in house prices may be relatively soft, with a rate of increase that is dampened or levels off. But even a moderation of the rate of increase in house prices could help to reinforce the tightening impact on household consumption. Historically, households’ consumption ratio, i.e. the share of households’ disposable incomes that is used for consumption, has been fairly well-correlated with changes in the value of household wealth (see Figure 1).2 Since the equity market decline in 2000 this relationship has been somewhat less clear, but it nonetheless suggests that house price inflation may only need to slow for the consumption ratio to drop. The risks of a more dramatic downward adjustment in house prices would increase if economic activity were to weaken relatively sharply and household incomes were to fall as a result. Naturally, this could make itself particularly hard felt if the developments in house prices and debt beforehand had taken off far too quickly and households had taken on more debt than they can manage in the long run.

The apparent absence of any marked overvaluation in the country overall does not mean of course that house prices in some parts of the country or in some submarkets have not been driven up more than is justified in the long term. The fact that the price increases can be explained relatively well by rising incomes, lower nominal interest rates and low construction activity does not rule out the possibility that the rate of increase could slow down, or that prices could even fall in the future. The developments in these explanatory factors normally follow the business cycle. However, the adjustment should be less drastic than in a situation when prices have soared in a way that cannot be attributed to developments in underlying factors. At present, it is especially important to remember that interest rates are low in historical terms and that they therefore very probably can be expected to rise in the period ahead. To get an idea of what constitutes a reasonable level for interest rates in the long term, one can look at countries that have had a floating exchange rate and low inflation for a longer time than Sweden. In the US and Germany, for instance, key interest rates have normally fluctuated between two and six per cent. When you have a regime with a successful inflation targeting policy I think that you normally can expect interest rates in this range. That also makes it clear that today’s repo rate of 1.5 per cent is uniquely low.
10 Monetary policy can only act in a crisis if its credibility is intact. Some central banks, including the SNB, have reached the zero lower bound for interest rates as a result of the recent crisis. Even after hitting the lower bound, these central banks are still able to pursue their objectives. In order to retain their freedom of action, they are resorting to unconventional measures. Some of these measures, such as purchasing securities of private sector issuers, are described as quasi-fiscal, meaning that they are part of monetary policy but, like fiscal policy, they have distribution effects. For this reason, they attract public and political attention and can therefore threaten the central bank’s independence. There is also a danger that politicians, economic agents and the public will expect monetary policy to have a solution for every problem. Numerous problems in the real economy, such as the lack of competitiveness and the current account imbalances, are structural in origin. In this area, it is the responsibility of governments to introduce reforms. Resolving such problems is outside the scope of monetary policy. The management of the recent financial and economic crisis has resulted in a much greater overlap between fiscal and monetary policy activities than before the crisis. In some countries, this has given rise to tension between fiscal and economic policy. The lack of a sustainable fiscal policy can lead to excessive demands being placed on monetary policy, which could result in the latter also straying from the path of stability.

If fiscal policy is no longer able to act, there is a danger that politicians, economic agents and the public will expect monetary policy to come up with a solution for every problem. In Switzerland, where good rules and a strong culture of stability exist, there is currently no tension. But even if our country is in a relatively good position, this is no reason to rest upon our laurels. Stability-oriented fiscal and monetary policies must be constantly maintained, to ensure that they are sufficiently robust when the next challenge presents itself. One of the greatest challenges for fiscal policy is demographic changes, which will place a heavy burden on public finances in the future. Calculations show clearly that, if policy is not changed, age-related costs will rise sharply. It will not be possible to solve these problems using only fiscal rules such as the debt brake. Profound structural reforms to social security arrangements are needed. Central banks, too, face major challenges. In the last few years, central banks across the world have broken new ground. They have cut interest rates practically to zero, supplied the financial system with generous amounts of liquidity and introduced unconventional monetary policy measures. These measures carry a number of risks, of which inflation is the most frequently cited. Allow me to conclude my presentation with a few words on that subject. 16  Cf. Jordan (2012b). BIS central bankers’ speeches  7  There is no sign of inflation for the short or medium term.
The real exchange rate measured in terms of developments in relative prices is an expression of the Norwegian krone’s purchasing power. The real exchange rate has fluctuated considerably over time and has deviated substantially from the average level since 1970 over longer periods. Nevertheless, there has been a tendency for the real exchange rate to revert to this level. Relative prices in a common currency are now approximately 2 per cent lower than the average since 1970.4 Relative labour costs in a common currency are approximately 3.5 per cent higher than the historical average. As mentioned, high wage growth over a period of several years starting in 1998 eroded the competitiveness of the Norwegian business sector. Even though the krone has depreciated since 2002, the competitiveness of Norwegian companies is still fairly weak due to the high cost level. The nominal krone exchange rate has now reverted to around the level prevailing in the mid-1990s, while labour costs in manufacturing have risen considerably more than among our trading partners in the same period. Asymmetric cyclical developments Cyclical developments in Norway and other countries have been divergent. This was most pronounced in the 1980s when we had a strong upturn while Europe was in a recession. Even though business cycles have gradually become somewhat more synchronised, there is still a time lag. While the global turnaround took place in 2000, with a subsequent reduction in interest rates abroad, the Norwegian economy continued to show a high level of activity.

Today, we are near the juncture of achieving a key milestone, where formal setting is no longer required to mobilise intra-region fund flows such as in the case of ABF1 and ABF2. Instead the intra-regional investments are becoming more self-reinforcing. As a proof of this, we now have more anecdotal evidence on the rising proportion of the regional central banks’ reserves invested in Asian local currency debt. iii)  Credit risk assessment approach  As we tread into uncharted territories of new asset classes, there is a growing need to enhance analytical capabilities, resources and risk controls. For example, many central banks and institutional investors have gradually moved away from over-reliance on credit rating agencies to an internally-based credit rating assessment practice in portfolio management. In the wake of the US financial crisis and recent European sovereign issue, one would question the credibility of credit rating agencies in flagging the risks built up in banks and sovereigns, ahead of the crisis. Most credit rating agencies also tend to apply ordinal ranking of credit, rather than specific risk metrics that can be mapped to default probabilities or expected losses. In my view, one of the major weaknesses of credit rating agencies is their objective to establish rating stability by applying smoothing methodology that can potentially delay minor downgrades, but trigger cliff-like and abrupt downgrades in the event of sharp credit deterioration. The abrupt regrading of credits tend to spook markets and is certainly not good for investors with a heart condition.
Early in October, two Icelandic banks received sizeable margin calls from the ECB. The ECB demanded that they be met immediately, which would have driven the banks to collapse. The news of these margin calls spread widely. For reasons that were not explained, the ECB withdrew the margin calls at the last moment, in spite of the fact that the Central Bank of Iceland had been informed that such decisions by the ECB were irrevocable. In retrospect, perhaps the safest way to prevent the collapse of the Icelandic banks would have been, at the outset, to place more stringent limits on their operations than were placed on financial institutions in other EEA states; in other words, to deny them the rights conferred by the EEA Agreement. Had this been done, Iceland would not have been a full participant in the internal market of the European Union. I will leave it to others to answer the question of whether political support would have been forthcoming for the imposition of such restrictions on the banks at that time. On the other hand, in view of recent developments, it is obvious that the banks took advantage of extremely favourable conditions to expand more rapidly than was sustainable for the long term as things developed. Because of their relative size,  BIS Review 22/2009  7  the Icelandic banks were more vulnerable than many other businesses even to moderately adverse developments, not to mention the catastrophic events that have shaken the global financial environment in the past year.

They took advantage of a liberal regulatory environment, good credit ratings, and the unusually advantageous conditions on the global markets and expanded their operations at a rapid pace. The European regulatory framework made this possible. In many ways their activities resembled those of banks in other countries. Under normal market conditions, this posed no immediate problem. The banks could have funded their operations even under sub-optimal market conditions. Many were of the opinion that the Central Bank should build up very large foreign exchange reserves, even up to a multiple of GDP, in order to back up the financial system. Given the current account deficit on the balance of payments, this would only have been possible with massive foreign borrowing. It would never have transpired, for the simple reason that the Icelandic government would have been unable to borrow such a large amount. Its credit ratings would not have tolerated it, and lenders would have been difficult to find. As I have touched on, the banks responded to mounting difficulties in various ways. Kaupthing, for example, abandoned its plans to acquire the Dutch bank NIBC. All of the  6  BIS Review 22/2009  banks sold assets and discontinued various non-core operations; however, as the IMF mentioned in the previously cited Staff Report, it was not a seller’s market. In addition, the banks all reduced their lending and laid off staff.
Our second priority is to accept the challenge of the new responsibilities that you, Chancellor, have asked the Bank to take on in respect of micro prudential regulation and macro prudential control of the balance sheets of the financial system as a whole. I welcome those new responsibilities. Monetary stability and financial stability are two sides of the same coin. During the crisis the former was threatened by the failure to secure the latter. The experience of the financial crisis taught us two important lessons. The first is that, whatever its theoretical attractions – and there certainly are some – putting prudential regulation into the same organisation as the oversight of consumer protection and market conduct didn’t work in practice. The two types of regulation require different skills and a different approach. Separating them – the so-called “twin peaks” model of financial regulation – is the right direction of reform. That conclusion is not a reflection on the people who work at FSA. They are an able group and have worked hard to improve prudential regulation over the past three years. I look forward to working with them in the future. Nor does it follow from this first lesson that prudential regulation should necessarily go to the central bank. 2  BIS Review 84/2010  But a second lesson is that when banks hit trouble the central bank needs to be fully involved in resolving those problems.

Markets need to form a view on the probabilities of different paths of future interest rates in order to price a wide range of financial instruments. So they are interested in what central banks say. In recent months both the Federal Reserve and the European Central Bank have found it far from straightforward to convey the likely trajectory of future interest rates. And the Fed announced three weeks ago that Chairman Bernanke had established a subcommittee of the FOMC to examine a number of “communication issues”. There is now a lively debate about how, and to what extent, central banks should try to communicate their intentions with respect to future official interest rates to financial markets and the wider public. At the Bank of England, our approach is to keep it as simple as possible. We don’t say where interest rates will go next for the simple reason that we don’t know. And it would be quite misleading to pretend otherwise. The MPC reaches a new judgment each month, made afresh in the light of all the new information about the prospects for inflation. We don’t decide in advance. So trying to give direct hints on the path of interest rates over the next few months risks deceiving financial markets into believing there are definite plans for the next few months when no such plans exist. But in order to form judgements about the likely path of interest rates over somewhat longer time horizons, markets do require some information from the central bank.
The key centre for international finance in Asia was Hong Kong. It was the Asian outpost of the City of London, and the gathering point for bankers. Further north, Tokyo was growing in pace with the Japanese economy, which was leading Asia. There was no reason why a financial centre had to be located in Singapore in those days. Mr Lee Kuan Yew once called it a most “improbable start”. Our development as a financial centre was always an act of volition – we made it happen. We created a space for ourselves in international finance, starting with the Asian Dollar Market (ADM) in late 60s, followed in the early 80s by the Singapore International Monetary Exchange, or SIMEX. They were building blocks for what is today the third largest foreign exchange centre in the world, and a leading Asian player in global derivatives markets. We developed a strong core of local institutions even as we opened up to greater competition from foreign institutions in the domestic market, especially in the last 15 years. Our local institutions have held their own, not only in the domestic market but in regional finance. And underpinning all of this, we developed the skills and capabilities that have made us a credible player internationally. The development of skills was progressive. We lacked banking expertise when our development kicked off. The MAS, itself a fledgling institution, together with the Association of Banks in Singapore (ABS), formed a Training Committee in 1972 to organise formal programmes to develop skills.

Tharman Shanmugaratnam: Institute of Banking and Finance (IBF) – celebrating 40 years of excellence Speech by Mr Tharman Shanmugaratnam, Chairman of the Monetary Authority of Singapore, at the Institute of Banking and Finance 40th Anniversary Dinner, Singapore, 10 June 2014. *  *  *  Mr Ravi Menon, Managing Director of MAS and Chairman of IBF, Former Chairmen of the IBF, Distinguished Guests, Ladies and Gentlemen, I am sure I speak for everyone in saying what a pleasure it is for us to be here as IBF celebrates its 40 years – 40 years of building skills and capabilities for what has become a leading international financial centre, and financial activities that support consumers and businesses with a broad range of their needs. I congratulate IBF for its achievements. Credit must go to IBF’s pioneers for your leadership and foresight, and the many individuals and financial institutions who have brought us to where we are today. Singapore’s development as a financial centre Major anniversaries are a good occasion for reflection. Singapore did not start out as a financial centre. In the early years of the nation’s development, the finance industry mainly comprised a group of foreign bank branches and small local banks. They serviced the foreign merchant houses and local merchants involved in trade across the Causeway, and provided working capital to various domestic businesses. However, the corporate sector relied largely on internal finance. There was also very little consumer finance. Skills in finance did not need to be more than basic.
Indeed, during the halcyon days of the so-called Great Moderation that preceded the financial crisis, it started to seem that Eddie’s ambition was no longer quite so demanding. But – as you all know – then came the crisis! That, combined with a commodity price boom and a sharp depreciation in sterling, meant that the days of GDP growth outstripping inflation quickly became a thing of the past. We’ve failed to live up to Eddie’s ambition for each of the past six years. The good news is that recent developments – on both growth and inflation – mean that we appear to be heading back towards an environment of which Eddie would have approved. Over the past six months, output has grown at an annualised rate of almost 3%, almost a quarter of a million new jobs have been created and indicators point to a continuation of strong growth. At the same time, inflation has fallen sharply and, at 2.2% in October, CPI inflation is as low as it’s been for four years. In terms of growth, the obvious question this raises is, why now? Why, after throwing everything bar the kitchen sink at the economy over the past few years, has the economy started to grow only now? Even more importantly, will the recovery last? Having seen a few false dawns over recent years, has the recovery really taken hold this time? And what does all this mean for monetary policy.

This in a sense underscores the importance of Tinbergen’s augmented policy rule – that there should be as many policy tools as there are complex sub-systems – when managing a complex system of systems. None of the models so far considers global spill-overs, either through trade or financial channels. Generally-speaking, there is a dearth of macro-economic models which take seriously these international spillovers in an analytically-coherent fashion. Even if modelling this behaviour is over-ambitious in the short-term, there may be merit in improved monitoring of these global flows of financing over time, given their importance for the stability of economies and financial systems. Elsewhere, I have likened this to the creation of “global weather map”. This could be used to track and map the source, scale and nature of cross-border capital flows in close to real-time (Haldane (2012, 2014) and IMF (2013)). Plotting this complex, rapidly-adapting web would be a natural precursor to using it to address “what if” questions. What, for example, would be the impact of a rise in US interest rates on the international flow of funds? The IMF would be the natural guardians of this surveillance-cum-stress-testing machine. (c)  Policy design  Significant changes have been made to the macro-financial policy architecture since the crisis. In general, these frameworks have moved closer towards meeting Tinbergen’s rule of having as many distinct policy tools as there are complex layers in the macro-financial system.