samchain/econo-pairs-v1 huggingface dataset:
Sweden is in a better position than many other countries, but there is work to be done to put an effective structure for macroprudential policy in place. Once this structure is in place, we will be more able to manage the risks associated with the high level of household debt. Monetary policy could of course be somewhat more expansionary in the short term but we must remember that monetary policy is not perfectly precise and we must have realistic expectations of what it can achieve in relation to the risks that exist. As I see it we are already at full stretch as far as household indebtedness is concerned. A continued low repo rate offers the possibility of good economic development in the short term and sustainable development in the long term. References Apel, M. and C.A. Claussen (2012), “Monetary policy, interest rates and risk taking” Economic Review, 2012:2, Sveriges Riksbank. Blanchard, O., G. Dell’Ariccia and P. Mauro (2013), “Rethinking Macro Policy II: Getting Granular” IMF Staff Discussion Note 13/03, International Monetary Fund. Brainard, W.C. (1967), “Uncertainty and the Effectiveness of Policy” American Economic Review 57:2, 1967, pp. 411–425. IMF (2013), “Sweden Staff Report for the 2013 Article IV Consultation” Country Report No. 13/276, September 2013, International Monetary Fund. BIS central bankers’ speeches  11  Kilian, L. and S. Manganelli (2003), “The Central Bank as a Risk Manager: Quantifying and Forecasting Inflation Risks” ECB Working Paper no. 226, April 2003, European Central Bank.

Sveriges Riksbank (2012), “Long-run developments in the Swedish labour market” article in Monetary Policy Report, July 2012. Sveriges Riksbank (2013),”Financial imbalances in the monetary policy assessment” article in Monetary Policy Report, July 2013. The World Trade Organization (2013) “World Trade 2012, Prospects for 2013” Press release April 10, 2013. Williams, J.C. (2013), “A Defense of Moderation in Monetary Policy” Working Paper 2013:15, Federal Reserve Bank of San Francisco. Woodford, M. (2012), “Inflation Targeting and Financial Stability” Economic Review, 2012:1, Sveriges Riksbank. 12  BIS central bankers’ speeches
So they decided instead to employ two much more junior and less well trained people. One worked for them already; the other, from outside the UK, they found in relatively short order after advertising on an EU-wide basis. The firm would end up being less productive than it might have been (two people are now doing the work of one). But there’d be a compensating fall in its average wage and, given the relative availability of less experienced employees, it made sense for them to go down this route. What I’m suggesting has more to do with relative quantities, not relative wages, and more to do with the short than the longer run: at a time when the UK has been outgrowing its neighbours, you’d expect easier immigration to amplify the rise in the relative supply of lowskilled employment. Some concluding remarks Let me sum up and, in doing so, say something about the implications for monetary policy. As macroeconomists, monetary policymakers like to deal in simple aggregates and averages. Output is doing this, employment that and wages the other. We know that the  8  More recently, economists have argued that computer technology substitutes most directly for the low-tomedium skill tasks. This would help to explain why the changes in the distribution of pay have had a “U” shape, with positive effects not just on high-skill pay but that at the low end as well (Goos and Manning (2003), Autor et al. (2006)).

Chart 7, summarising the results, is a version of a graph we published in the last two Inflation Reports. Note that, over time, the effects have tended to be positive. The average age and experience of the workforce has grown; more people have gone into higher education and higher-paid occupations. But on top of that underlying trend, we’ve seen sharp movements, in both directions, during the recent cycle. Both the drop in job creation during the Great Recession, and the corresponding pick-up during the recovery, were skewed towards the less skilled, less well paid end of the jobs market. Chart 8, which plots the differences in job creation across three classes of occupational characteristics, depicts one aspect of that pattern5. You can see similar differences in rates of job creation between young and old, less and more educated. And as I outlined in the introduction, the effect of these swings was to add materially to the growth of average earnings during the downturn and to subtract from it in 2013 and 2014. Unskilled employment generally more cyclical Before asking why this has happened let me make a few points about the estimates. First, there are some approximations involved. One involves the mix of surveys: we’re estimating the impact of compositional changes on LFS pay data and assuming the effect simply carries over to the AWE. That’s the most reasonable assumption, but it’s an assumption nonetheless.
Hence, labour mobility can eliminate bottlenecks in the labour market. Employment is also strengthened by local wage negotiations. Some of the newer industries apply performance-related pay to a greater extent. This allows firms to reduce costs more easily while retaining employees when earnings decline. More traditional industries also seem to be making use of wage flexibility. Differences in productivity growth and wage growth across Norwegian manufacturing enterprises show that workers tend to accept lower pay increases in enterprises with low productivity growth.3 This can provide companies with more time to adapt and curb the impact on unemployment. Even though Norway fares favourably in relation to many other countries, the Norwegian labour market also has its weaknesses. Wage growth now probably accelerates at a higher level of unemployment than it would have ten or twenty years ago. Many unemployed are also channelled from unemployment to social security benefits, and benefits may be an obstacle to returning to the labour force. Sickness absence also rose for a long period, but has declined markedly over the past six months, partly reflecting tighter requirements concerning individual follow-up. The Petroleum Fund The Government Petroleum Fund was established in 1990 with a view to promoting an even distribution of wealth across generations. The idea behind the Petroleum Fund is to channel cash flows from petroleum production to the Fund, with the capital being invested abroad. Consequently, changes in oil prices have little effect on the mainland economy.

And we also need to identify the needs in the areas of monetary and prudential policies, where the CEF’s member countries have urged it to continue expanding its activities. This is a full agenda, and I am sure it will not be the last time we get together to exchange views on these issues. I believe strongly that we stand to gain immeasurably from considering these challenges on a regional basis. We can learn from each other’s experience; we can engage at times in a joint dialogue with the external actors in the region; and perhaps our political leaders can find some opportunities to launch reform initiatives in parallel – for example, in developing structural reforms to help promote a flow of new capital to, and within, this region. In this spirit, I look forward to very fruitful discussions – now in Tirana and in the future! 2  BIS Review 162/2009
For policymakers this has created enormous challenges, as it has for firms, which have had to adjust almost overnight. Technology – the internet in particular – has proved indispensable for remote working, commerce and education. Digital laggards have had to invest in appropriate technologies, such as video conferencing, and accelerate the digitalisation of their customer interfaces and supply chains. Because of this significant investment, remote work and e-commerce will probably remain more common after the COVID-19 crisis ends. The pandemic is thus likely to have accelerated the trend towards a digital economy. One obvious example, which is relevant for central banks, is payments. Although cash payments are still very common in Switzerland, online payments and contactless payments have significantly increased because of the pandemic. We can see similar trends in other areas of interest for central banks. For example, the rise of ‘big data’ and digitalisation is affecting the financial system and financial markets. Before turning to these developments and how they affect the work of the SNB, we would like to reflect on just how extraordinary the COVID-19 pandemic shock has been and how unconventional the policy responses have had to be. COVID-19: new shock, new crisis The COVID-19 pandemic triggered an unprecedented economic shock and extreme uncertainty. The need for social distancing and the strict lockdown measures required to contain infections resulted in a sharp drop in consumption and production around the globe.

And I would also like to urge you to take a little time off to visit some places of interest, while you are in this beautiful country, Sri Lanka. Thank you. BIS Review 50/2004  1
The real exchange rate is the one that is most important to the real economy; the nominal exchange rate should primarily be regarded as an asset price that affects the real exchange rate over the relatively short term. As Figure 5 shows, the nominal and real exchange rates have co-varied closely during the inflation-targeting regime. The explanation for this is that, as I mentioned, exchange rates that are determined freely by the market tend to be volatile. At the same time, most of Sweden’s trading partners have monetary policy frameworks resembling our own, so inflation rate differences are generally fairly minor. The nominal exchange rate can change rapidly, but prices generally move more slowly. All in all, this means that short-term fluctuations in the real exchange rate, to a large extent, are driven by variations in the nominal exchange rate. Movements in the nominal exchange rate were smaller before 1992, when Sweden had a fixed exchange-rate regime, even if the devaluations carried out during the 1970s and 1980s led to relatively large fluctuations. However, even during periods with fixed nominal exchange rates, large fluctuations took place in the real exchange rate. These were driven by  BIS central bankers’ speeches  7  differences in inflation rates between Sweden and the rest of the world. Between 1982 and 1992, the real exchange rate strengthened markedly, with Swedish competitiveness being undermined considerably as a result.

It is not the Banque de France’s role to take the place of the relevant authorities by issuing a list of recommendations for reforms in the fields of education and training, the functioning of the labour market or social welfare. However, as far as methods are concerned, the Monetary Policy Council believes that a benchmarking principle for structural issues could be adopted in the euro area, namely convergence towards best practices, as we did in monetary and fiscal matters with the Maastricht criteria. Why not reverse the burden of proof in the field of structural reform by asking euro area countries why they do not introduce, in their own countries, reforms that have been successfully BIS Review 115/2000  4  implemented in another euro area country? The choice of such reforms should depend on three criteria: first that they have been decided on the basis of a political consensus, second, that they have been implemented on the basis of a social consensus and third, that they have been successful in combating unemployment. A large number of reforms pursued within the euro area meet these criteria. Thirdly, maintaining economic competitiveness: making France an attractive business location in an equally attractive euro area In the new environment created by Monetary Union and the single currency, cost and price competitiveness is, more than ever a key indicator of the conduct of national economic policies. European policies must place the emphasis upon this aspect of competitiveness.
Furthermore, the issue of the liquidity of the newly resolved entities – mainly the “good banks” – is not sufficiently clearly addressed: liquidity support by public sources beyond what can legitimately be expected from the Eurosystem should be clarified. Second, consistency in the legal framework and requirements: faced with the accumulation of new and “separate” requirements, we need to adopt a holistic and consistent approach in order to avoid a prudential overload. In particular, the TLAC requirement resulting from the new international framework requires a consistent adaptation of the European minimum requirement for own funds and eligible liabilities (MREL). In the same vein, the consequences of an internationally agreed Basel III package – if and when it comes – should be carefully taken into account, as it would lead to increased risk-weighted assets, which will in turn impact the MREL. All this, combined with pillar II capital requirements, could lead to over-calibration: each individual decision may be warranted; but their somewhat disorderly accumulation is not. And obviously, we must not jeopardise the level playing field between euro area banks and their international competitors. Third, in the interaction between authorities, which should be improved: the case of Banco Popular, although it was a success, has also demonstrated the importance of swift and close cooperation between supervisory and resolution authorities, both at European and national levels.

The fourth is not an accelerator in substance, but rather a “facilitator” for the first three: in terms of institutions, we would need a euro area Finance Minister and Parliament. These four accelerators are needed, but this does not mean they all have to be implemented at the same time. With the existing Treaty, we can take steps straight away on the first two accelerators, macro and micro, on which I will elaborate. The macro accelerator is a collective economic strategy in the euro area. It is premised on one simple fact: economic growth and employment would be stronger in the euro area if we combined more reforms in countries where they are needed, like France or Italy, and more stimulus in countries with leeway for it, like Germany or the Netherlands. To achieve this, euro area Member States have to seal a deal, which could be prepared and adopted as early as 2018. National reforms are obviously a prerequisite to any enhancement of the Economic Union. I take this opportunity to welcome the successful reforms carried out in the Netherlands in recent years, especially in the labour market. Real GDP is expected to grow here by 3.2% in 2017 and the unemployment rate is likely to reach 4.8% in 2017, close to full employment.
Both the risk-averse moneyseeking investors and the leveraged risk-seeking investors on either side of the dealers’ balance sheets questioned the liquidity and solvency of many of those dealers. Maturities shortened dramatically until most transactions were at overnight maturities, rolling daily (Gorton et al, 2014). Some dealers experienced “runs”. Financing terms for leveraged investors tightened sharply, causing some to fire sale assets and adding to market instability. In the US, the market infrastructure was flawed, with the daily unwind of tri-party repo transactions relying on massive intra-day financing from private sector clearing banks. 3  8.5% is the sum of the 6% minimum Tier 1 to risk-weighted assets ratio plus the 2.5% capital conservation buffer under Basel III. BIS central bankers’ speeches  3  Since the crisis, regulators have addressed many of the underlying problems of excessive leverage and maturity transformation: a. Securities financing transactions are included in the internationally-agreed leverage exposure measure adopted by the Basel Committee 4. Leverage ratio requirements will put prudent limits on the size of dealers’ matched books. b. They are also included in the Basel Committee’s measures to address liquidity risks. The recently-announced Net Stable Funding Ratio 5 will require short-term secured loans to financial and non-financial borrowers to be backed by at least 10% stable funding. And supervisors can use the Liquidity Coverage Ratio 6, as we have been doing for some time in the UK, to require dealers to hold liquid assets against prime brokerage risks such as withdrawal of cash margin by hedge fund clients.

Regulators will need to be alert for pure regulatory arbitrage – seeking to change the form but not the economic substance of transactions in order to lower regulatory requirements. We have already seen, for example, transactions seeking to take credit risk in the form of derivatives rather than loans in order to lower the leverage exposure measure. More legitimately, banks might switch from activities for which risk weights have increased to activities which carry lower risk weights (Chart 2). The leverage ratio will, however, set an effective floor on the ability of banks to improve their capital position by shifting into low riskweighted assets, providing a safeguard against uncertainties around our estimates of risk. Conversely, banks for which the leverage ratio is a binding requirement may have incentives to move into higher risk-weighted activities (Chart 3) but the risk-weighted ratio should limit the extent of any such risk shifting. In this way, the risk-weighted and leverage ratios should complement one another. It will be interesting to see how banks allocate capital in a world  2  2  http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech765.pdf. BIS central bankers’ speeches  where they are subject to multiple capital constraints – risk-weighted, leverage and stresstest-based.
Annual variations in inflation are now substantially smaller than they were in the 1970s and 1980s. Over the past ten years, average inflation has been somewhat lower than, although fairly close to, the target of 2.5 per cent. BIS Review 65/1008  1  Inflation measured by the CPI varies from month to month, primarily as a result of wide fluctuations in electricity prices, but also due to other temporary disturbances. The rise in the CPI-ATE shows inflation adjusted for one-time effects of tax changes and excluding energy products. Inflation, measured this way, has risen since summer 2006. One disadvantage of this indicator is that it does not only exclude the temporary effects on electricity prices of, for example, changes in the weather; it also excludes more persistent developments in energy prices. Energy prices have risen more than other prices for a fairly long period, leading to an average year-on-year rise in the CPI over the past 5-10 years that has been close to ½ per cent higher than the rise in the CPI-ATE. Other available measures of underlying inflation also suggest that inflation has moved up. While the year-on-year rise in the CPI-ATE is now 2.4 per cent, other measures of underlying inflation are above 3 per cent. 2  BIS Review 65/2008  Recently, inflation has been somewhat higher than our projections from last year. Inflation was broadly in line with expectations through 2007. In 2006, inflation was considerably lower than projected at the beginning of the year.

Norges Bank’s bank lending survey indicates a gradual tightening of banks’ credit standards, but so far the effects of tighter credit have not come into evidence. Developments abroad may also influence the Norwegian economy through reduced trade. It may be more difficult to sell our export goods when growth is declining in other countries, and prices for our products may fall. Oil prices and other commodity prices have increased appreciably since 2002. The rise in commodity prices has primarily been fuelled by rapid economic growth, particularly in China and other emerging market economies. Conditions are still favourable for shipping and oil and gas, engineering industry, aluminium, ferroalloys and salmon. In the event of a persistent setback in world economic growth, the Norwegian economy will eventually feel the effects through lower exports. 12  BIS Review 65/2008  The interest rate differential between Norway and our trading partners has increased. Coupled with solid growth in the Norwegian economy and very high oil prices, this has resulted in an appreciation of the krone. In krone terms, this reduces prices for imported goods and services. A strong krone may also result in lower activity in the business sector and gradually translate into lower wage growth. The krone exchange rate shows monthly, quarterly and yearly variations. The long-term value of the krone is determined by changes in the terms of trade and permanent differences between domestic and external inflation and productivity. In recent years, the krone has appreciated.
So, as you can see, designing a simpler framework is not a simple task! Our discussion paper elaborates on all these choices, and I hope to have whetted your appetite to get involved in the discussion by responding to our paper. Leverage Ratio and MREL reviews Next, I want to move on to something a bit more relevant in the shorter-term to some of the larger BSA members with us today – the links between the leverage ratio and MREL reviews. I am conscious that at the moment this may be relevant to only a handful of you, so in case you are still listening to my speech I will aim to be brief. The Prudential Regulation Committee and the Financial Policy Committee are conducting a review of the UK leverage ratio framework in light of the now-finalised international standards.3 At the same time, the Bank, as Resolution Authority, is conducting a review of its MREL framework and how it applies to mid-tier firms.4 As many of you know, this alignment of timings is not coincidental as the two are closely linked. How so? At first look, one link is through the calibration of MREL. For firms subject to bail-in resolution strategies, MREL is calibrated as twice the applicable minimum requirements set by the PRA. So if a firm is subject to a minimum leverage ratio requirement, this will typically be doubled-up in their MREL. But the two are linked in another way, which gives this doubling-up an additional significance.

On the one extreme, the PRC and FPC might now decide that the current scope of the framework has served us well, and that it is enough for PRC to continue with its leverage ratio supervisory expectations that currently apply to all firms. On the other extreme, the PRC and FPC might decide that there is benefit in extending the leverage ratio framework to all PRA firms, whether from a micro-prudential or a system-wide perspective. Similarly, the Bank’s MREL review is considering the thresholds for being subject to a resolution strategy requiring use of the Bank’s stabilisation powers, and in connection to that the resulting MREL calibration for mid-tier firms. These links and their implications for the different reviews are being closely coordinated across the three authorities – the PRC, the FPC and the Resolution Authority. No decisions have been made on either, but I expect all three authorities to be saying more on these reviews over the summer – so watch this space. Mortgage risk-weights Finally, I want to close with something that I hope is of interest to both the larger and smaller firms in our audience. Last time I was here, I spoke about the significant decline in UK mortgage risk-weights for firms using internal models – from an average of around 15% in 2009 to around 10% today. This has led to increased prudential risks, and an increasing divergence between firms that use these models and firms that do not.