samchain/econo-pairs-v1 huggingface dataset:
What Hahn’s bit of rhetoric does suggest is that you need some sort of financial friction – some departure from the platonic realm of Arrow-Debreu – to explain why money might matter. Take, for example, the relationship that determines consumer spending in many models of the macroeconomy. Typically, this originates with a question: how would a forward-looking consumer, able to borrow and lend relatively freely, allocate his or her spending over time? After solving that stylised problem, and a bit of manipulation, you end up with something like this:  [1] Here, in what I’ve described rather grandly as equation [1], f(.) is some function of current and future (real) interest rates and the term in brackets is total wealth. Wealth has two components: net financial assets W (with an average real price p) and the present value of current and expected future labour income, or “human wealth” H. (In this set-up, greater “consumer confidence” can be thought of as a rise in those future expected incomes, and therefore this H term.) Higher real interest rates depress both p and H because they increase the rate at which future income is discounted. Because there’s only one market here (in borrowing and lending) the demands of this set-up aren’t quite as onerous as in Hahn’s “best developed model of the economy”, with its multiple barter exchanges. Nor do you have to assume that people can borrow and lend at precisely the same rate of interest (it does matter that they can do so at all).

QT and the MPC’s forecasts I want to turn now to the second question I posed at the beginning: should the MPC not recognise in its forecasts some particular and additional drag on demand and on inflation, on top of that induced by higher Bank Rate, from the ongoing “quantitative tightening” (or “QT”)? This began over a year ago, initially by failing to replace maturing gilts in the APF. In September, the MPC commenced outright sales of assets and said that, by both means, it would reduce the size its size by £ over the following year. Page 28  Readers who’ve come this far will be glad to hear that this section will be pretty brief because I’ve actually gone through the main points already. There are two. First, because the impact of QE has been variable I don’t think it would be right to pretend there’s some fixed, unchanging effect on the economy – to translate, for example, a given quantity of asset purchases (or sales) into some notional equivalent in terms of Bank Rate. It’s partly because of this, and the fact that we can only be less sure of its impact than that of conventional policy, that the MPC views Bank Rate is its “primary” policy instrument. By design, the Committee did not embark on QT until the official interest rate reached a certain threshold – a level from which (were the need to arise) it could then be cut.
Who would want to come to the rescue of a country that is not prepared to pay the cost of a reasonable insurance? Let me make a comparison. Some years ago, Sweden chose to re prioritise within its defence forces, and the compulsory military service system was abolished. Now that uncertainty in global policy has increased, the Swedish defence budget has increased, and compulsory military service is being considered again. It is quite simply safer to have, for instance, a number of JAS fighter planes on standby than to rely on being able to rent them if one needs them, partly because in an acute situation it would probably take too long and because it would be difficult and expensive. Foreign currency reserve – part of Sweden's economic defence Similarly, we can regard the foreign currency reserve as part of Sweden's economic defence. The advantage of having a foreign currency reserve is that it can quickly be made available for liquidity support to the banking system if an acute need were to arise. A foreign currency reserve can also prevent a financial crisis by creating confidence in the central bank’s ability to take action when necessary. This is particularly important in a situation where market confidence in the country’s credit and payments systems is under pressure. If you say it could never happen to Sweden, let me remind you of Ireland and Iceland.

What is the situation in the Swedish banking system? The Swedish banking sector is large and cross-border. In January 2017, the Swedish banks’ balance sheet total amounted to approximately SEK 17,000 billion. This is a figure that is rather difficult to grasp. It corresponds to four years’ worth of Swedish GDP. Everyone understands that a crisis in the Swedish banking system can become extremely problematic and also very costly to manage. Of course, the comparatively low sovereign debt in Sweden means we have greater room for manoeuvre in a crisis than many other countries. Comparatively low national debt in Sweden today 80  80  70  70  60  60  50  50  40  40  30  30  20  96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16  Note. Sweden’s national debt in relation to GDP, Maastricht definition. 20  Source: Eurostat  5 The design of the Swedish pension system, with a large share of collective savings in the form of funded  allocations within the occupational and premium pension systems, is one factor that may have had an impact on the banks’ financing structure. See Nilsson et al. (2014). 3 [14]  If one looks at the Swedish banks’ capital adequacy ratios as a percentage of their risk-weighted assets, they appear to be very well-capitalised.
16  Figure 6 US-China trade (percent of each country's GDP)  30  35 35 United States Other imports Chinese imports30 30  25  25 25  25  20  20 20  20  15  15 15  15  10  10 10  10  5  5  5  5  0  0  0  0  35  99 01 03 05 07 09 11 13 15 17  35  China Other imports  US imports 30  99 01 03 05 07 09 11 13 15 17  Source: Bloomberg. Figure 7 Nominal exchange rate and multilateral measures (1)  Real exchange rate (2)  (index, 2017-2018=100)  (index, 1986=100)  110  110  105  MER-5 OER 105  100  MER 100  120  120  2003-2017 average  110  110  100  TCR  90 95  MER-X 95  90  90  17  17 Jul. 18 18  18 Jul. (1) Dotted vertical line shows punteada corresponde al cierre estadístico del IPoM de marzo y junio del 2018. Source: Central Bank of Chile. 80  100 90  1998-2017 average  70  80 70  89 93 97 01 05 09 13 17 (2) August 2018 information covers up to the 28th. Source: Central Bank of Chile.

BIS central bankers’ speeches  5  Given our choice of the level for the key policy rate, the deviation from the inflation target will be somewhat larger and economic developments somewhat weaker in the short term than would otherwise have been the case. This cost can be regarded as an insurance premium against future adverse outcomes. The gains that we can achieve are that a downturn will be less pronounced should the economy be exposed to negative shocks. In addition, we can reduce the probability that imbalances trigger a crisis. The expected path for inflation and output becomes more stable. The size of the gains is uncertain. Developments in debt and house prices depend on a number of factors in addition to the interest rate. The extent to which the interest rate influences the build-up of imbalances may thus change from one situation to another. Even in retrospect it will be difficult to measure the gains. The size of the insurance premium will also vary. When inflation has strayed far from the target, the prospect of a further deviation will be given more weight than when inflation is close to the target. It is generally agreed among central banks that monetary policy must in certain situations take into account the risk of a build-up of financial imbalances. At the same time, Norges Bank has been one of few central banks where this consideration has played a clear role in interest rate setting in recent years.
The government authorities, the Central Bank and the Financial Supervisory Authority (FME) have already made a formal agreement on joint monitoring of signs of weakness in financial institutions, and contingencies for responding to them. This agreement has been under preparation for a long time, is similar to those in effect in other advanced economies and has nothing to do as such with the current market unease. Developments following the structural changes in the housing mortgage market have left the arrangements for the Housing Financing Fund in an untenable position. Moves to rectify this situation have been unduly delayed. Interest rate formation in this market has become unrealistic as a result, which in turn has an adverse effect on the Central Bank’s efforts to cool the economy. The Prime Minister’s recent declaration concerning the Housing Financing Fund is important and has met a positive response. But the declaration needs to be followed through in practice, as soon as possible. A few years ago it was decided to separate the activities of the Central Bank and banking supervision, drawing on developments elsewhere, in particular in the UK, which had a widespread influence. This may well not have proved as successful everywhere as was hoped. Most of the banks in the UK are foreign banks, and the share of domestic banks is small. The opposite is true in Iceland. In spite of their large and growing activities abroad, all the Icelandic financial institutions are classified as resident companies.

Institutions are admittedly not accustomed to drawing attention to their forecasts if they do not come completely true. But what are the explanations? It has transpired now that GDP grew last year by more than was forecast, and new national accounts data also show that the figure for 2004 was hugely underestimated. GDP growth then was 8.2%, the highest figure in Iceland since 1987, which was effectively a tax-free year [when Iceland moved onto a PAYE tax system]. Last year was eventful on the economic front. Private consumption grew at its fastest rate since 1987 and gross fixed capital formation faster than any year since 1971. Import growth has not been as brisk in any year since 1953 and the current account deficit broke previous records – although it should be added that as a result of income from soaring foreign asset holdings, Iceland’s net external position only deteriorated slightly. Real wages were at a peak, unemployment at a minimum and direct foreign inward investment ran at a massive level. This inflated picture must be seen in the light of the very robust economic growth in the previous year, 2004, and strong growth in 2003 as well. Besides these large movements, a structural change in the domestic credit market made much more capital available to mortgage borrowers. Higher disposable income and net wealth also contributed to making this a unique period in Icelandic economic history.
The oceans provide a rich and lengthy test-bed of the links between diversity and robustness. Over the past millennium, studies of coastal eco-systems reveal some dramatic patterns. 18 For around 800 years, between the years 1000-1800AD, fish stocks and species numbers were seemingly stable and robust. Since then, almost 40% of fish species across the world’s major  18  The results here are based on Worm et al (2006). BIS Review 53/2009  9  coastal eco-systems have “collapsed”, defined here as a fall in population of greater than 90%. That is systemic by any metric. There appear to be many environmental reasons for this collapse, some natural, others manmade. But the distribution of this collapse across eco-systems is revealing. For species-rich – that is, diverse – eco-systems the rate of collapse has been as low as 10%; for species-poor eco-systems, as high as 60%. Diverse coastal eco-systems have proved to be markedly more robust, measured over century spans. Results for large marine eco-systems suggest a similar picture. Over the period 1950-2003, the incidence of collapsed fisheries declines exponentially with species-diversity. 19 Diversity also appears to increase the resilience of fisheries – that is, their capacity to recover – in the event of collapse. These results reappear throughout marine eco-systems, “in coral reefs in Jamaica and on rocky shores in Panama”. 20 And they do not appear to be unique to marine eco-systems.

Changes observed in the market features of the business in other countries also foreshadow what may in time characterise the mortgage market in Malaysia. In some markets, brokers of home loans are commonplace and a growing proportion of loans are protected by insurance. In an increasingly challenging environment, banks will need to demonstrate that they have sufficiently strong balance sheets, processes, and management plans in place to contain the risks, while providing continued support for portfolio expansion and product innovation in the mortgage financing segment. This will entail continuous assessments of the changing profile of risk and the appropriate consideration of new and alternative ways to manage risks. The board in particular is responsible to ensure that product innovation and the re-packaging of risks in the mortgage portfolio do not outstrip the bank’s capacity to manage the associated risks. Today, we are pleased to have three distinguished speakers address some of these issues and developments in greater depth. They are Dr. Yeah Kim Leng from RAM Holdings Berhad and Dr. John Lee from KPMG who will share an overview and their perspectives on risks in mortgage markets in Malaysia, as well as their experiences with approaches to managing these risks in the light of the many changes taking place in this area. We are also especially honoured to welcome Mr. Peter Pang, the Deputy Chief Executive of the Hong Kong Monetary Authority, who will speak on Hong Kong’s experience in the area of mortgage financing.
Although the economic recovery has provided for an appreciable reduction in this rate, it still stands at around 19%. Foreseeably, several years must go by before unemployment in Spain falls to levels comparable with those of other developed economies. Of note in Spain’s case is the heterogeneity of the unemployment rates in different regions, from levels slightly over 12% 4/7  in Navarre to close to 29% in Andalusia, with Catalonia in the lower part of the table at around 15%. Monetary and financial policy in the face of the crisis The recovery in the developed economies, and in particular in the euro area and of course in Spain, has necessitated far-reaching actions in all economic policy areas. Early efforts by the central banks focused on alleviating the liquidity problems affecting the financial system. But the serious worsening of the situation opened the way for more powerful plans, both in the financial and monetary realms and in terms of fiscal initiatives to boost aggregate demand. Regarding monetary policy, the depth and persistence of the crisis has required an ongoing effort by central banks. Over these years, the monetary authorities have broadened their range of instruments, resorting to non-conventional tools that have enabled monetary stimuli to be deepened and that have been conducive to their pass-through to lower borrowing costs, thereby encouraging household and business consumption and investment decisions.

Action by central banks  I would now like to discuss in more detail the ways in which central banks reacted to the financial market crisis. Given that operational frameworks differ from one central bank to another, and given the highly technical nature of the subject, I will restrict myself to some stylised facts relating to the actions taken by central banks in general and those taken by the Swiss National Bank in particular. Central banks responded to the financial market turmoil gradually, by progressively shaping and expanding their instruments. At the outset, central banks tried to counter rising shortterm money market rates by applying their existing instruments in a more flexible way, by adjusting the size, frequency, and the conditions of their discretionary open market operations. For example, in order to react to the fluctuations in the demand for reserves, the SNB now conducts more frequent fine-tuning operations than in the past. Although the enhanced use of fine-tuning operations managed to stabilize overnight rates, term spreads remained high. Central banks felt that it was necessary to address this situation, because it not only reflected an increase in credit risk but was also a sign of a lack of liquidity in these markets. Central banks therefore introduced new facilities with longer maturities and offered exceptional long-term financing operations. For example, in September, the SNB carried out a CHF 5 billion repo auction with a three-month maturity. Until then, the maturity of its daily repo auctions had usually been one week.
Coping with the shock is within our means, if each of us will do our best and if we continue to guarantee with priority the monetary and financial stability of the country. Thank you! 3/3  BIS central bankers' speeches

I think there is little doubt that the current exchange rate is below this new, lower equilibrium rate, as is often the case in a financial crisis. However, there is great uncertainty about how far below equilibrium it is. There is also considerable uncertainty about how much the equilibrium exchange rate will rise in coming years and how much the exchange rate will correct itself. The Central Bank’s newly published forecast assumes that the exchange rate of the króna against the euro will remain close to current levels until well into 2010, whereupon it will gradually rise to about 170 in 2011 and 2012. We hope, of course, that this forecast is unduly pessimistic, and experience tells us that the currency can appreciate swiftly once it gains upward momentum. But it would be imprudent to base plans and policy actions on such a hope. On the contrary: I believe we should prepare ourselves for a protracted episode of weakness. And, like so many other things, there are both pros and cons associated with such a development. BIS Review 146/2009  3  That doesn’t change the fact that we would all have to make a concerted effort to botch things in order to prevent the exchange rate from being considerably higher in a few years’ time than it is today. But then we will have to remember to buy back the foreign exchange that we have used to support the króna in 2008 and 2009.
Øystein Olsen: The conduct of monetary policy Introductory statement by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the hearing before the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), Oslo, 20 May 2011. Please note that the text below may differ from the actual presentation. The statement is based on Norges Bank’s Annual Report for 2010, Monetary Policy Report 1/11 and the Executive Board’s assessments in the period to the monetary policy meeting on 12 May. *  *  *  I would like to thank the Chairman of the Committee and also thank the Committee for this opportunity to report on the conduct of monetary policy in connection with the Storting’s deliberations on the Government’s Financial Market Report. My statement here today is based on the Bank’s Annual Report, but also on the Executive Board’s assessments for the period to the most recent monetary policy meeting and new information. I also refer to this year’s report from Norges Bank Watch, a group of experts that evaluates Norges Bank’s conduct of monetary policy. 1. Activity in the Norwegian economy has gained a firm footing  The global financial crisis that unfolded in 2008 gave rise to the most severe economic downturn of our time. There was a dramatic decline in international trade, and in the following year world GDP decreased for the first time in generations. Although global economic growth has recovered, the outlook remains uncertain.

The new regulatory framework will make it more costly for banks to expand rapidly. Moreover, the new framework includes macro-prudential measures that can be triggered when necessary. Basel III includes a countercyclical capital buffer that requires banks to set aside more capital against their loans. This will increase their capacity to absorb future losses, which to some extent can also dampen credit growth during an upturn. In today’s situation in Norway, with elevated debt burdens and high and rising house prices, a countercyclical capital buffer would have been a useful instrument. Chart: Inflation The interest rate affects general economic developments, including the housing market and other conditions that have implications for financial stability. Experience indicates that monetary policy alone cannot ensure stable economic developments. The objective of  4  BIS central bankers’ speeches  monetary policy is low and stable inflation, and we only have one instrument – the key policy rate. There are limits to the number of considerations the interest rate can bear. We therefore need more targeted instruments to dampen the build-up of risk in the financial system. The interest rate also has effects on other asset prices, such as the krone exchange rate. A monetary policy that aims at bringing down the value of domestic assets can easily push the value of the krone in the opposite direction. In interest rate setting we can never lose sight of the primary objective of monetary policy, which is low and stable inflation. Thank you for your attention.