samchain/econo-pairs-v1 huggingface dataset:
17 [23]  in the same way as prior to the financial crisis or whether monetary policy should actually take explicit account of the risk of a financial crisis. My view is that financial stability and monetary policy are so closely interlinked that it is difficult to draw a clear boundary between them, which is one reason I think it would be good if the Riksbank were to have main responsibility for macroprudential policy.18  The importance of independent macroprudential policy The Riksdag has given the Riksbank an independent status. This is based on the insight that there may be reasons for economic policy makers to pursue a shortterm policy that is incompatible with long-term goals. This is usually referred to as the ‘time inconsistency problem’ and is commonly found in economic policy. In monetary policy, the fundamental problem is that decision-makers are happy to promise low and stable inflation, at the same time as they also wish – after households have formed expectations of low and stable inflation – to conduct a more expansionary monetary policy to increase employment. However, households realise this and incorporate this knowledge into their inflation expectations, which leads to inflation becoming excessively high. One solution to the time inconsistency problem is to delegate monetary policy to an independent central bank with an inflation target. My assessment is that this is a solution that has worked well in Sweden. Time inconsistency is also a problem in macroprudential policy. One example of this is capital requirements for banks.

Figure 7(a) foreign currency reserve in relation to GDP and to the Swedish banking system’s foreign funding and Figure 7(b) foreign currency reserve as a proportion of the country’s short-term debts in foreign currency 2016 7(a ) 15  7(b) 100  Reserves to FX funding Reserves to GDP  342  90  322  80  12  124  70  66  60 52  9  50 41  40 6  36  30  26  20  0 0  02  04  06  08  10  12  14  16  14  18  9 10 6 7 8 8 3 4 4 4 4 5 1 1 2 2 2 3 3  IRL CYP NDL GRC MLT BGR FRA DEU BEL GB SWE prel FIN EST ESP ITA SVN CAN AUT SVK AUS SWE SGP NOR HKN JPN CHE CZE ISL KOR  10  3  Note. Fi gure 7(a), per cent. Foreign funding refers to Swedish banks’ (including Swedish subsidiaries but excl uding foreign s ubsidiaries) market funding and deposits i n foreign currency. The broken part of the l ine represents the Riksbank’s forecast based on the reduction of the currency reserve proposed i n the draft. Figure 7(b), countries marked in grey belong to the euro a rea. Sources: IMF, Statistics Sweden a nd the Riksbank. Conclusions for monetary policy I opened by noting that these are unusual times in the Swedish economy.
So much so, it was said that when the USA got a cold, the others got pneumonia! However, recent trends show that the world economy is no longer overwhelmingly reliant on the advanced economies only. In fact, the weights seems to be gradually shifting with the emerging global economy recording strong growth performances during recent years, while the advanced economies are basically recording moderate growth. It may therefore be useful to “flag” this important aspect when we are discussing the issues relating to harnessing sustainable growth in emerging markets. Let us consider as to what extent the current expansion in emerging markets and developing countries is due to the implementation of good policies, or as to whether it  BIS Review 29/2008  1  was just good luck that made this happen. What is the secret behind this remarkable performance of emerging economies? A simple assessment may probably tell us that the main driver of the recent expansion has been the fast integration of these developing nations with the global economy, and the rapid opening out of their economic activity. All three major emerging economies, China, India and Russia, were basically “closed” economies a couple of decades ago. Emergence of these three giants, who collectively account for 20% of land area on the earth and serve as home for 40% of world population, has dramatically changed the shape of world trade, direction of capital flows and the growth sources of the global economy.

In other words, many countries re-positioned themselves to become “net commodity exporters” from being “net commodity importers”, in the face of rising prices. They were quick to understand that such a shift was vital for their future economic development and well being. As in the 1970’s, today too, there is a clear trend where countries are quickly attempting to boost their capacity to produce oil and agricultural commodities. If, as expected, this re-positioning and/or restructuring occurs, and occurs quickly, the current imbalances will be addressed sooner than later. In fact, if we look at the recent increases in bio-fuel production, it has clearly been a case of steady increases in the production of all varieties of oil substitutes, all over the world. In that sense, the current vibrant and challenging economic environment provides new and exciting opportunities to both developing and advanced countries, and many countries seem eager to seize opportunities and implement decisions quickly. Mr. Chairman, at the same time, we should also probably realize that in our constant search for sustainable growth, the more regular issues that confront emerging economies also need to be addressed appropriately through a series of fundamental policy actions. Let us therefore, for completeness sake, take a quick look at some of those policy actions as well. One, the sound management of risk.
This is why I welcome the introduction of a legislative bill on a financial stability council, which aims to provide a stronger foundation for systemic risk analysis and response and to guarantee access to the necessary information. Time will tell whether further steps are necessary. On 9 April, the Central Bank will publish its annual Financial Stability report, including a detailed analysis of the financial system and the risks affecting it. I will therefore be brief on that topic. The big picture is this: since Iceland’s outward-oriented banking system collapsed, a great deal has been achieved in terms of building up a financial system with a domestic focus. The banks’ balance sheets have grown stronger, non-performing loans are on the decline, foreign exchange mismatches have been reduced, equity has increased, and liquidity is strong. Corporate and household debt levels are falling. The regulatory framework for banking operations has also been improved based on the experience gained from the financial crisis, both with implementation of international rules deriving from the important cross-border collaboration that developed during the crisis, and with implementation of rules based more Iceland-specific risk. A good example of this is the new liquidity rules adopted by the Central Bank in December, which are based on the Basel III principles but include special ratios for foreign-denominated liquidity.

At the same time, we recognise that our digital goals and aspirations can only be achieved through the values and behaviours of staff that promote inclusivity (between those that have technological skills and those that don’t); accountability (that is, the effective and responsible use of technology); effective collaboration that breaks away from working in silos; and an appropriate level of risk-taking that is compatible with a more agile and responsive organisation. And so we have taken pains to be specific and deliberate in our approach to building a digital culture within the Bank. This starts with being clear across the organisation on our tolerance for higher risks associated with disruptive innovations – through the development and communication of our digital risk appetite. We are shifting conversations on new digital initiatives away from the technical solutions themselves, to a greater focus on the business process transformations that they are intended to serve, and that is what we measure and track. We are also investing heavily in equipping our people with the knowledge, skills and confidence to make sound judgment calls in an environment where the pace of change is occurring at a dizzying speed, and our ability to anticipate risks is likely to be more constrained. At a practical level, this means being more precise about escalation, decision and communication protocols, while allowing more flexibility in internal policies to allow business lines to respond swiftly to emerging situations.
Wellconducted monetary policy – which achieves monetary stability – reduces the scale of economic fluctuations over time, mitigating risks to financial stability. And a more stable financial system reduces the extent to which the financial system causes or exacerbates economic fluctuations, making the job of monetary policy easier. But the detail underneath this headline, how monetary policy and financial stability interact, is more complex. Monetary policy affects the whole financial system, “getting in all the cracks”[1], and so it affects financial stability via a number of transmission channels. First, monetary policy, by design, changes incentives to borrow. It does this by affecting interest rates[2] as well as the value of assets that can be used as collateral[3]. Similar effects can occur for lenders like banks. By affecting the value of their assets and liabilities, monetary policy can relax or tighten lenders’ solvency constraints, affecting their incentives to lend[4]. Second, monetary policy affects the assets financial institutions choose to hold. Changes in shortterm interest rates or Quantitative Easing (QE) affect the relative attractiveness of different assets. Investors may then adjust their portfolios, for example purchasing riskier corporate bonds[5]. Monetary policy can also affect investment decisions by changing investors’ risk tolerance[6] or their incentives to ‘search for yield’[7], although the strength of this risk-taking channel is  Page 4  debated[8]. Third, there is market liquidity, the ability to buy and sell assets easily. Liquidity is a key financial stability concern, and another area where monetary policy can have powerful effects.

FT: So there is not much room for manoeuvre and very soon you are going to have to think about other non-standard measures? CN: If we feel we need more… We are in a process where three month rates lose a few basis points every day. Market and lending rates are continuing to move nicely downwards. The process has been fuelled by the 275 basis points cut that the ECB has decided. The process is not finished. We need some time for all that to feed through into the economy. FT: So no rate cut in April? CN: We will see. We have proved that we were always ready to act when we felt it was necessary. But we act on the basis of facts and figures, not only macro-economic facts and forecasts, but also on the actual developments in the financial markets. FT: Do this week’s French industrial production figures means things in France are going to get a lot worse than expected by the Banque de France and the government? CN: The figures were bad and I must say that they probably makes our own forecast of a decline of growth of 0.6 per cent during the first quarter maybe a little bit optimistic. But this being said it is difficult to judge what it means without all the analysis.
In fact, with accommodative financial conditions, strong fiscal support, and widespread vaccinations, I expect that the rate of economic growth this year will be the fastest that we’ve experienced since the early 1980s. And that’s not only a forecast—we are already seeing signs of this pivot to strong growth in the economic statistics, as I’ll discuss in a minute. If this sounds like good news, that’s because it is. But robust economic growth this year by itself isn’t enough to achieve the truly strong and full economic recovery that we are aiming for. We are still far from our goals of maximum employment and price stability, known as the Fed’s “dual mandate." 1/3  BIS central bankers' speeches  To inform our decision-making, we consider a broad range of factors that help us understand developments affecting economic growth, labor markets, and inflation. I’ll start with the most common measure of the overall economy: gross domestic product, or GDP. I mentioned that I expect GDP growth this year to be the fastest in decades. Specifically, I see inflation-adjusted, or real, GDP increasing around seven percent this year. This is welcome progress after the toughest period for the economy in living memory and a winter when the pandemic was particularly severe, and the economy suffered as a result. Despite the truly devastating effects of the pandemic on employment, recent job growth is the strongest it’s been since last summer.

In late November, the annual growth of budget revenues was only 2 percent, almost entirely reflecting the low pace of generating the tax revenues. On the other hand, public expenditures have maintained high growth rates, accounting for 16.4 percent in November. The budget deficit reached ALL 65 billion in November. The deficit has been mostly financed through foreign borrowing and privatization receipts, dampening the pressures in the domestic financial market Rapid growth of expenditure and budget deficit during 2009 has further increased the public debt level, accounting for 58 per cent of GDP at the end of November. The Bank of Albania deems that the future budget policy orientation towards fiscal consolidation, aiming at reducing the public debt, is now a prerequisite for the macroeconomic stability in the country. As we have constantly stated, the public debt reduction will mitigate the pressure of the public sector on the financial markets, creating more room for the private sector. Consolidation of public finances will also lower the risk premiums in the economy and will raise the monetary policy effectiveness. Monetary supply slowed down further in the second half, reflecting to a great extent, the ever lower credit growth. Annual growth of private sector loan portfolio slowed down to 10 percent in November. Unlike the first six months of 2009, when credit growth curbing was more  BIS Review 11/2010  3  affected by the tightened supply, in the second half of the year the credit performance was dictated by decreased demand for loans.
What this implies for the monetary stance and the level of interest rates will inevitably vary between countries and regions as different monetary authorities make their own judgements about the pace and extent of tightening appropriate to their own circumstances. Indeed, some monetary authorities in the Asia-Pacific region, where growth has been stronger and inflationary worries greater, have already begun to tighten policy. Elsewhere, in the UK and many other major economies, the current settings of monetary policy still reflect the aggressive loosening of policy to counter the severe downside risks of the recession a year ago. As these downside risks recede and recovery becomes more firmly established, it will be important to reassess how much of that stimulus is still needed to keep the economy on a steady course consistent with low inflation. Conclusion The turnaround in the global economy over the last year has been quite impressive, given the scale of the shocks from the financial crisis. That should give us grounds for encouragement that continued growth in the global economy will provide a supportive backdrop for recovery in the UK – even if some of our important markets, such as the economies of the euro area, may be turning around more slowly. Indeed, the IMF’s mediumterm forecasts for the world economy over the next five years point to stronger global growth than we experienced in previous recoveries from the major recessions in the 1980s and 1990s, as Chart 8 shows.

BIS Review 33/2010  7  But there are also many uncertainties affecting the current outlook for the global economy and I would highlight four key influences which will shape the recovery which does unfold over the next few years. First, I have argued that an improvement in business and consumer confidence has been a key ingredient in the economic turnaround so far. And in the absence of further shocks to the global economic system, we should expect confidence among firms and households to continue to recover, supporting the growth of private sector spending and helping the recovery to build momentum. But given our experience in recent times, we cannot rule out new shocks which could set back recovery. Second, a major financial adjustment is taking place in the major economies of Europe and the United States as banks adjust their lending behaviour and seek to rebuild their balance sheets. This adjustment will continue to dampen the recovery in demand on both sides of the Atlantic too some degree, though its impact should lessen as the process of financial repair and rebuilding progresses. Third, world growth in the recovery so far has been particularly strongly driven by the performance of Asia and other emerging markets, and their dynamism has to a large extent offset slower growth elsewhere. In my view this is not a flash in the pan, but a structural feature of the world economy that we are now living in, and we should expect a continuing impetus to global growth from this direction.
The Fed and the Bank of England have introduced a new “collateral swap facility”, under which the banks can temporarily swap their unsaleable securities against liquid government paper. The pressure on banks to refinance their balance sheets is thus reduced without additional central bank money having to be injected into the market. The Fed went even further in providing support during the sale of investment bank Bear Stearns. It took illiquid and risky securities directly onto its own balance sheet. Thus, in the third phase, some countries administered new remedies in addition to the existing ones, and even performed a few emergency operations. In the SNB’s case, the range of counterparties admitted to repo auctions has already been very broad for some time. Indeed, shortly before the turmoil began, we decided to expand the range of eligible securities for money market operations, whilst still retaining stringent quality standards. Measures such as those used in the US and UK have not proved necessary in Switzerland to date. Monetary policy steering during the crisis The measures taken by the SNB, as described above, were primarily aimed at ensuring the smooth functioning of the Swiss franc money market during the turbulence. However, it is also important to look at the actual implementation of monetary policy strategy during the crisis. Of particular interest in this regard are two aspects which have occasionally been misinterpreted by the general public.

Thomas Jordan: The various waves of money market turbulence and the measures taken by central banks Introductory remarks by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the half-yearly media news conference, Geneva, 19 June 2008. *  *  *  The money markets are the lifeblood of the international financial system. Properly functioning money markets are absolutely essential for the solvency of banks, as well as for the effective implementation of monetary policy. Hence, events on the money markets since the onset of the financial turmoil have been a particular focus of central banks’ attention. So far, there have been three waves of turbulence. At the time of the last news conference, we were almost at the height of the second wave. In the meantime we have experienced a third wave, which peaked in April. An appropriate barometer of the health of the money market is the difference between the three-month Libor and the three-month (T)OIS rate (tom-next/overnight indexed swap). This difference reflects the credit and liquidity premium on unsecured money market trades compared to purely derivative business with virtually no counterparty risk. With the help of chart 1, which can be regarded as a “fever curve”, I would now like to look back at how events unfolded, and comment on the measures which the central banks took in response. The first wave peaked in September 2007.
The real sector is showing signs of constant recovery, corroborated by some positive developments in the external economy. I would like to underline that a clearer prospect of the political and economic situation in Greece will have a positive impact over the upcoming period. The Bank of Albania has been continuously monitoring the developments in our Southern neighbour, aware of the various risks that could spill over in the Albanian economy. But, thanks to the precise and duly interventions, especially in the banking sector, these risks never materialised. BIS central bankers’ speeches  1  The constant easing of the monetary policy seems to be reflected especially in investment indicators, with the domestic and foreign ones showing significant improvement over the first half of the year. On our side, we are happy that these investments were not only due to public sector interventions. There was also a substantial component by the private sector. This makes us believe that well-studied projects by the investors, coupled with an increasingly sound and pro-investment business climate, will serve as main drivers for the economy towards not only higher but also more sustainable growth in the near future. In accordance with the best contemporary practices, the Bank of Albania has endeavoured to enhance the transparency in its communication with the public, not only about the actual decisions but also about our forecasts. The Bank of Albania has constantly conveyed to the economic agents the idea that the monetary policy will remain accommodative and will sustain the revitalisation of the economy.

During this process, we have been assisted and overseen also by important international financial institutions such as the World Bank and the International Monetary Fund. Beyond the non-performing loans issue, the banking system continued to be well capitalised, liquid and financially sound. The issue of non-performing loans will require some more time to resolve, but this should not keep us from the recovery of the credit activity at home. For as long the positive performance of the other above-mentioned indicators continues, the banking sector has room and the potential to credit convincing projects and investments. In my judgement, it is important to administer with courage and persistence the prevalent perception that non-performing loan have forced banks to adopt a very conservative approach to lending. To permanently address this problem, additional measures have been taken and will be taken in the future. I would like to briefly focus on the latest initiative in this regard: a coordinated plan between the Bank of Albania, Government of Albania, Association of Banks, and International Monetary Fund, consisting in two main pillars: The first pillar relates to the drafting and completing the legislation that regulates lending from the moment of concluding a contract until the final repayment, including disputes among the parties. These changes aim at making more precise in legal terms all procedures related to banking activity, bailiff services, borrowers and other relevant state institutions.