samchain/econo-pairs-v1 huggingface dataset:
The broken trend l ines have been calculated using the HP filter. Sources: Gomme et al. (2011), Bureau of Economic Analysis, Federal Reserve and the Riksbank  We can observe that the development in Sweden has been similar. Figure 5(a) shows that the real return on capital in Sweden between 2000 and 2016 has been relatively stable with minor variations around slightly below 8 per cent while the real interest rate has shown a falling trend. Figure 5(b) shows that investment is also close to or slightly above its long-term trend in Sweden. Figure 5. Real return on capital, real interest rate and investments in Sweden 5(a ) Return on capi tal and real interes t ra te 10  Real interest rate, 5 years  5(b) Investments i n the business sector 1000  Investments Investments, nonresidential  Return on capital  8  800  6 600 4 400 2 200  0 -2  0  00  02  04  06  08  10  12  14  16  85  90  95  00  05  10  15  Note. Fi gure 5(a), per cent. Return on capital in the business sector. Broken lines show a verage return on ca pital s ince the year 2000. Real interest ra te refers to 5-year real government bonds. Fi gure 5(b), SEK billion. The broken trend l ines have been calculated using the HP filter.

These agents, together with VPC AB (the Swedish central securities depository) and the Stockholm Stock Exchange, account for the central parts of the payment system. Payment information is sent between the participants through the SWIFT communications system. The Riksbank’s RIX system is the central point on which most payments and payment methods are dependant. This applies to cash payments, card payments, credit transfers, interbank loans, payments of transactions in securities and foreign exchange, etcetera. What I have just described is part of the central financial infrastructure about which most people know very little and see very little – it just exists and is expected to work. The banks are responsible for a large part of the infrastructure that meets the general public, for instance, through ATMs. In recent years, however, the general public has also become part of the infrastructure in that our own private computers can communicate with the banks' Internet banks. The importance of crisis recovery planning Today it is a matter of course for us to have access to different types of payment services. It is therefore easy for us to forget how complex and time-demanding it would actually be if we were suddenly forced to make cash payments directly to all those we need to pay money. Personally, I have many suppliers that I would need to visit at the end of every month to pay my bills.
The rate of increase in both household borrowing and house prices is lower now than it was last spring5, while forward-looking indicators such as SEB’s housing indicator and SBAB’s estate agents survey point towards lower rates of increase in the future. However, the statistical base is still fairly uncertain and it is too early to talk of a break in trend. Our experiences and international experiences show that it is difficult, if not very difficult, to make accurate forecasts of housing prices. However, it is clear that the current development, with increases of a good 10 per cent a year, cannot be regarded as sustainable in the long term. On the other hand, I do not believe that a fall in house prices on a broader scale is a particularly likely scenario, although this could happen here and there in certain regions. The most probable scenario is that house prices will continue to rise, albeit at a slower rate than they have done in recent years. Are there any risks with this development? As household debts have increased, the question has been raised as to whether the household sector is borrowing too heavily and what the effects would be on the banks’ loan losses if the macro economy were to develop unfavourably. Given that the Swedish household sector’s total debts currently amount to almost 140 per cent of disposable incomes, which is a few percentage points higher than immediately prior to the bank crisis, this is a reasonable question (Figure 5).

Behind this favorable response of the Chilean economy lies a macroeconomic policy framework able to pursue an effective reaction, and a regulatory scheme supporting the high resilience of the domestic financial system. In Chile the monetary policy framework consists of a flexible inflation-targeting regime with a floating exchange rate. This framework has allowed us to respond efficiently to external shocks keeping inflation expectations anchored. Before the Asian Crisis of 1998, we had a managed exchange rate and we had capital controls in place to allow monetary policy independence to manage inflation in a context of abundant capital inflows. Indeed, we experienced a costly adjustment to that episode, and this was fueled in part by financial stability concerns that called against an exchange rate adjustment. But once the harder times had passed, the exchange rate was allowed to float freely, facilitating not only the external adjustment against shocks but also improving the incentives for private agents to properly hedge their foreign currency operations. The deep-rooted credibility of our Central Bank has also facilitated the conduct of monetary policy with a floating exchange rate system. The fact that the market understands that the Central Bank pursues a goal for inflation at a 24-month horizon means that the exchange rate pass-through to inflation is relatively low, indeed the lowest in the region. This can be illustrated with the reluctance of the Central Bank to tighten monetary policy in 2015 despite a 49 percent devaluation in 2014-2016, and without affecting 24-months-ahead inflation expectations, which remained anchored at the target level.
I also hope that the work that has begun on a number of other important frameworks in the wake of the financial crisis will be finalised this year. This will entail a change in the focus of the Committee’s work. Going forward, the Committee will place more emphasis on monitoring and assessing the application of the frameworks to ensure that the regulations are effective. The international regulatory work is extensive and will affect us directly when the regulations are introduced here in Sweden. Having a global regulatory framework that increases the safety margins in the global financial system will benefit everyone and is therefore important. It is also important to remember that the international discussion on regulations and regulatory frameworks has a lot in common with the discussion underway here in Sweden. In the main, the measures proposed in Basel III aim to reduce risks that also exist in our Swedish banks and that we have been pointing out for a long time. The international regulatory work therefore serves Swedish interests – in other words, it is not a question of introducing regulations that have mainly been drawn up to manage problems that only concern other countries. Moreover, discussions are underway in international forums that are similar to those underway here in Sweden on many other policy issues, but perhaps not as much progress has been made abroad as in Sweden on considering what measures can be introduced. One example of this is the discussion of floors for risk weights.

I have long been clear that the risk weights for mortgages that the banks calculate using their own models are often too low. However, the causes of both the Swedish and the international problems can be traced to the same source. Internationally too, it has been concluded that the banks’ own models are inadequate for ensuring that risk weights always reflect the risks in a good and reliable way. Discussions are therefore underway as to whether the regulatory frameworks, as well as the oversight and approval of the banks’ internal models, must be reviewed so that the models cannot become tools for an unwarranted lowering of the capital requirements. In my opinion, finding ways of ensuring that the risk-weight calculations are credible and that the risk weights of different banks can be compared is one of the most important tasks of the Basel Committee going forward. A number of measures are being considered and discussed; we will gradually begin to see the fruits of this work. This relates, for example, to reviewing the banks’ choice of models for calculating risk weights and the degree of freedom for the banks to make their own assumptions in the models, as well as setting stricter requirements to ensure that the data used as input in the models is of sufficiently high quality.
Timothy F Geithner: Policy implications of global imbalances Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Financial Imbalances Conference at Chatham House, London, 23 January 2006. *  *  *  Good morning. Let me first thank the organizers of this conference for inviting me to speak to you today. Over the next two days you will focus on the substantial financial imbalances that characterize the world economy today. The size and duration of these imbalances, perhaps the most visible of which is the U.S. current account deficit, present challenges—and risks—for the world economy. Understanding the forces behind the international capital flows and the associated gaps between saving and investment within countries that led to these imbalances is of crucial importance to economic policymakers as they struggle to consider the implications of the imbalances on future economic growth. You have brought together an excellent group of people to explore these issues. You meet in the context of some remarkable developments in the world economy. I thought I would begin by touching on some that bear most directly on the subject of your conference. Naturally, as a central banker, I’ll begin by observing that over the past two decades, most of the world has experienced a substantial fall in inflation.

BIS Review 3/2006  1  How much of the reduction in real forward rates is attributable to a drop in expected real returns and how much is a reduction in the real risk premium is still an open question. The low level of long-term real rates seems likely to reflect in part a general rise in the supply of global saving relative to demand for investment, and some have suggested this phenomenon may reflect concern about prospects for future returns on investment. However, there is also evidence from other financial market indicators that the required compensation for bearing real risk has fallen, raising the possibility that the declines in real rates are due not to pessimism (or at least not entirely), but instead to an increased appetite for, or a decreased perception of, real risk. Against this backdrop of a favorable but so far uneven productivity shock, lower inflation expectations and risk premia, greater economic and financial integration, and divergent saving and investment patterns, what are the implications of the imbalances that are the subject of this conference? It is important to note that the greater dispersion in external imbalances is the inevitable result of a fundamentally healthy change in the world economy.
In contrast to goods – which tend to be traded internationally – the services sector is more heavily oriented towards the domestic market. So if the margin of domestic spare capacity or weak demand in the UK economy is pushing down on inflation, we should see this reflected more clearly in measures of services sector inflation. Chart 11 Resilient services inflation in UK Annual percentage change in consumer and producer prices 5 4 3 2 Consumer prices  1  Producer prices 0 -1 2005  2006  2007  2008  2009  2010  2011  Source: ONS  Instead, as Chart 11 shows, services inflation – whether measured by the prices charged by firms or the prices faced by consumers – has been remarkably resilient. After a short dip in the aftermath of the recession, price increases – whether measured by consumer prices or producer prices have returned relatively quickly to the levels we saw in the mid-2000s. And if we look at the services component of the consumer prices index, this 3–4% level rate of inflation has been a fairly consistent feature in the decade prior to the recession. There is not much evidence here of spare capacity and weak demand pushing down on services inflation. And whereas relatively high services inflation in the late 1990s and early 2000s was offset by flat or falling goods prices, this is no longer the case.

Secondly, output in 1989, at the end of the communist era, comprised a very large component of heavy military material and moreover inferior equipment and consumption goods that never came close to being sold or valued in a market, the majority of which were most likely unsellable in a market economy, and many of which were unusable even in a planned economy. The convergence towards the EU average went on during the entire period from 1992-1993 when we had reliable statistics. GDP has grown faster than in the EU and more rapidly in the poorest countries in the group than in the richer ones. This is exactly what we can expect from theories on international economics and long-term convergence in productivity and prosperity. Behind these figures lies a revolutionary change that makes structural change in EU countries pale by comparison. For each component of GDP that has shrank, another component has grown; for each day that an old heavy industry has closed its gates, dozens of new small enterprises have started up. Allow me to give some examples: In 1991 the private sector constituted 10 per cent of GDP in Estonia; today it is over 80 per cent. Manufacturing, which accounted for 47 per cent of GDP in the Czech Republic in 1992, now comprises 38 per cent, while services at the same time have risen from 44 to 58 per cent. Nevertheless, economic growth in the new member states is not high enough.
For me questions include: is there any evidence that the tight labour market is easing; what is the revised outlook for demand in view of the Government’s fiscal announcements; are domestically generated inflation pressures consistent with returning inflation to the 2 per cent target; and what do financial market developments tell us. The MPC was clear in its language in September that should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee would respond forcefully as necessary. In the context of the developments I’ve set out for you, today I think the central question for all nine of us on the MPC is how forceful do we need to be, to ensure inflation does return sustainably to the 2% target in the medium term. These are very challenging times for the UK economy and millions of households and businesses are experiencing real hardship as a result of the cost of living crisis. On the MPC we are acutely conscious that for many our monetary policy actions are adding to the difficulties caused by the current situation. We know from past periods in our history the damage to households and businesses that would result if high inflation persisted. Unlike earlier inflationary episodes, where we saw more persistence in inflation caused by ineffective policy and policy frameworks, this time we have a monetary policy framework which empowers us to take action.

Durmuş Yilmaz: Dollarization – consequences and policy options Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at a Conference on “Dollarization”, Istanbul, 14 December 2006. *  *  *  Distinguished Governors, Academicians and Guests, I would like to welcome you all to the conference entitled “Dollarization: Consequences and Policy Options”. I would also like to thank you for sharing your precious knowledge and experiences with us. As this conference is one of the activities organized in the context of the 75th anniversary of the Central Bank of Turkey, it gives me an honor to give the start for it. Before continuing with my speech, I would like to comment on the motives that lie behind the topic of this conference. Although we have never had hyperinflation, we, in Turkey, experienced high and chronic inflation for the past almost 30 years before 2001. Living long years with chronic inflation led to huge losses in the credibility of our national currency, which is important for us as an institution responsible for issuing banknotes and maintaining stability of the money. In this sense, it will be appropriate indeed to discuss dollarization in depth, I believe. Given the wide range of issues related to dollarization and the limited time available, I will make some brief remarks on the concept of dollarization in general and touch upon the Turkish experience in particular. Dear Guests, Dollarization has evolved as one of the noteworthy features of globalization during the last two decades.
In these circumstances, both money market investment funds and non-financial corporations withdrew from the market. The investment vehicles created to transfer the risk and keep it off bank balance sheets then saw their liquidity dry up and had to turn to the lines of credit committed by their sponsoring banks. This increased the amounts which banks had to borrow and forced them to turn to the central banks for financing from 9 August 2007. The tensions which characterised thereafter the functioning of the interbank and credit markets, despite attempts by the monetary authorities to restore normality, were symptomatic of a growing lack of confidence about the situation of financial institutions in the main developed economies. These misgivings were confirmed by the considerable losses of banks caused by these complex products linked to US subprime loans, which in many cases gave rise to the need to raise large amounts of capital. Nonetheless, although some credit institutions went bankrupt as a result of those investments and others were rescued, no systemic institution went under. Indeed, the rescue of Bear Stearns in March, with the US authorities supporting its acquisition by JP Morgan, sent a message that such failures would not be permitted. In that long year, the credit and interbank markets functioned with difficulty and liquidity disappeared from the primary and secondary securitisation market, against a background of growing lack of confidence and aversion to risk. This enormously hindered the wholesale funding of credit institutions.

The distribution chains for goods and services provision, ports, airports, railway transport and energy are just a few examples. Finally, I should like to mention the need to reform the labour market, collective bargaining and indexation clauses. In the absence of prompt and decisive reforms in these areas we will see unemployment increase sharply, with the harmful effects that this has on activity and on the stability of our financial institutions. Conclusion We are currently facing an unprecedented international financial crisis in a severely weakened macroeconomic setting. Certainly our banking system has moved in the right direction, reinforcing its risk control management mechanisms, its profitability, its efficiency and its solvency. This gives it a solid starting position but we cannot allow ourselves to be either naive or complacent: the Spanish banking sector is facing major challenges that will affect its capacity to generate profits in the coming quarters. I am convinced that our banks, which knew how to capitalise on the expansion, will also know how to take the appropriate management measures and adopt the right strategy to allow them to address these difficulties successfully. For our part, the public authorities will continue to take the measures necessary to ensure that this unavoidable adjustment takes place in the least traumatic way possible for our economy.
We are in the very preliminary phase of this discussion and many challenges lay ahead in that regard, particularly deciding what should be subject to international supervision and what should be subject to national or regional supervisory entities. Much of the discussion today evolves around crisis prevention. In terms of crisis resolution, the recommendation is for every country to take all the necessary actions to restore the regular working of its financial system, consumer and investor confidence and the level of economic activity. But every country must act according to its needs and resources. Countries were financial institutions faced severe losses require capital injections, while some countries have to boost domestic demand to compensate for too much dependency on exports. The important point here is to draw a clear difference between fiscal stimulus, liquidity management and monetary policy. 2  BIS Review 147/2008  The difference between liquidity management and monetary policy is not clear for many observers nowadays, but it is nonetheless fundamental. In moments of market disfuntionality, for instance, monetary easing sometimes does not work. It is important to mention that in some circumstances liquidity management is the critical issue. Of course, we should not forget the need for price stability in order to have the basis to restore growth.

In the context of the euro area this is due to the absence of a fiscal union, the different fiscal positions of the individual countries, and the different, but on the whole high, levels of their debt burden. Against this backdrop, Bulgaria's fiscal position continues to be solid, with its second lowest debt-to-GDP ratio in the EU. However, the country's fiscal position faces some serious potential risks arising from the severely disrupted budgeting process over the last two years and the trend, emerging in this period, towards continued loosening of fiscal policy. The issue is not so much the high expenditures which were needed and largely unavoidable, especially during the Covid-19 crisis, but rather their quality. The higher expenditures in that period, which led to a higher deficit, were meant to be targeted and temporary, and this was the right approach. Within the strongly fragmented budgeting process, however, these targeted and temporary expenditures mostly became allencompassing and continuous, and tended to increase further. In this case risks occur along two lines. On the one hand, the persistent and progressive loosening of fiscal policy could bring us back into the long-forgotten times of high deficits, growing debt, and liquidity difficulties of the budget. This would in turn adversely change the internal structure of budget expenditures, with increasing debt service expenditures, especially in the context of rising interest rates, at the expense of investment and social expenditures.