samchain/econo-pairs-v1 huggingface dataset:
It is called the Global Projection Model (GPM) and its main aim is to produce cohesive and consistent forecasts for different regions of the world.2 The GPM also plays an important role when we want to produce different risk scenarios. …and changeable So, what regions of the world are most important to Sweden? The region on our doorstep is of course very important. This primarily includes the euro area, but also the UK, Denmark, Norway and a couple of other countries in central and eastern Europe. Most of our trade takes place with this region. A region that has increased in economic importance over time is Asia. The emerging economies in Asia, led by China, have been the driving force behind the recovery of the global economy following the financial crisis. The importance of these countries for Sweden’s foreign trade has also shown an increasing trend since the early 1990s. This of course means that it is now more important to monitor these countries than previously. The United States affects Sweden through financial links Finally, developments in the United States are always important even though in tradeweighted terms the United States only accounts for about 10 per cent. The reason for this is that the US economy often sets the tone for the development of stock markets and bond rates around the world. It is true that our knowledge and understanding of these financial links is limited3 but it appears to be the case that they play a particularly important role during slowdowns.

In the monetary policy analysis, however, the focus is often on what will happen in the period in-between, or on developments two to three years ahead. It is generally accepted that it is at this time horizon that monetary policy has its greatest effect. As I said earlier, monetary policy aims to make monetary policy decisions that provide as good a target attainment as possible and the models are important in this context because they make it possible for us to evaluate different monetary policy alternatives in forecast terms. Models are on the whole very useful when we want to evaluate alternative scenarios in which development takes a different course than predicted in the main scenario. However, the analysis of alternative  4  BIS central bankers’ speeches  scenarios must not be reduced to a purely model exercise and it is important that such analyses are also complemented by assessments.4 Let me conclude the discussion of model forecasts by saying that they are sometimes described as being in some way at odds with forecasts that are based on assessments. In my opinion there is no such opposition between them. A forecast is always an assessment. We develop models so that they can help us to make better assessments. A good and wellfounded forecast is often produced in a structured interaction between models and assessments by experts. Forecasting, extreme scenarios and the financial crisis In normal circumstances, a forecast path can be described as a probability-weighted average of different reasonable scenarios.
Competitiveness and macroeconomic stability In international comparisons of competitiveness, Switzerland is regularly among the leaders. For example, it has headed the World Economic Forum’s (WEF) Global Competitiveness Index for years (cf. chart 1). So what are the factors behind Switzerland’s high degree of competitiveness? Let me make something clear right at the outset: competitiveness depends first and foremost on companies and their ability to innovate (cf. chart 2). Innovation helps companies to increase productivity, thereby lowering costs and prices. In addition, innovation leads to higher quality and greater exclusivity of products or services, which in many cases bestows price-setting power. BIS central bankers’ speeches  1  Switzerland is a case in point: its industries are highly competitive, precisely because our country is among the world leaders in innovation, as a number of indicators have shown. If, for example, we look at the number of registered patents relative to population size, Switzerland is by far the most active of the OECD countries (cf. chart 3, left-hand panel). Innovation indices, such as the Global Innovation Index and the Innovation Union Scoreboard, also place it right at the top. 1 A key factor behind this leading position is the level of investment in research and development (cf. chart 3, right-hand panel), which is above average by international standards. Firms that are innovative and willing to invest cannot develop and thrive in a vacuum. The scope for development is largely dependent on a country’s location-specific factors.

I’d like to illustrate the difference between the short and long-term consequences of a stabilityoriented economic policy with a classroom metaphor. In most school classes, there is a particularly enthusiastic pupil, the “swot”. For swots, the immediate effect of good academic achievement is negative, as they become excluded by the other pupils. Should they perform less well, simply to avoid this unpleasant situation? In the short term, the result would be positive, but in the long term they would probably regret it. Switzerland as an economic centre faces a similar dilemma. The result of the successful economic policy, and the associated stability, is that the Swiss franc has a tendency to strengthen, demanding constant adjustment from companies and their workforces. So should Switzerland throw its principles overboard and pursue an irresponsible financial and monetary policy? This would automatically reduce the pressure to appreciate and to adjust. And in the short term, that probably would bring some relief. However, in the medium and long term, such a policy would certainly come at the huge cost of endangering the hitherto successful “Swiss model”. The Swiss franc’s role in SNB monetary policy strategy What does this mean for monetary policy in practical terms? As a rule, monetary policy should not focus on the short-term impact of a strong franc on price competitiveness. Therefore, a monetary policy geared towards long-term macroeconomic stability does not normally involve any fine-tuning of the exchange rate.
Uncertainty over the future of crypto-assets in the world of payments does not relieve us of the need to regulate their development, given the attendant risks. Adopting a framework that  protects participants in the real economy will help to increase their confidence in the mechanisms associated with crypto-assets, thereby promoting growth in the new assets. The intrinsically digital and global nature of crypto-assets means however that a coordinated international approach must be taken to avoid creating an opportunity effect, because experience tells us that participants can easily relocate to another territory offering more flexible laws. Several international organisations have set up working groups to explore this question, under the leadership of the G20. While some of the discussions are still in their infancy, the aim in the medium term is to come up with a framework and an international code of conduct to preserve security for everyone and promote financial stability, which is a common good that we all share. Thank you for your attention. 5/5  BIS central bankers' speeches

However, the improvement in the macroeconomic environment and positive economic growth has resulted in great strides in the development of the financial services and financial sector in general. The Government of the Republic of Zambia through the Ministry of Finance and Bank of Zambia has been putting in place measures to maintain a stable macroeconomic environment which have resulted in low inflation and a decline in interest rates in recent years. Except for the volatility of the Kwacha exchange rate against other currencies experienced in recent months, the exchange rate has been fairly stable over the years. We remain confident that the economy is on a robust footing and the end year inflation target of 6.5 per cent is attainable. The Bank of Zambia will continue to be vigilant and take appropriate measures to support the stability in the macroeconomic environment. 2  BIS central bankers’ speeches  Ladies and Gentlemen, the strong economic performance has culminated in growth in both the number of financial services providers and the financial products in the country. However, the level of financial inclusion still needs to be broadened further. The evidence from the FinScope Demand Surveys revealed that as at 2009 only 37 per cent of the adult Zambian population was financially included. This signified a 3.6 per cent marginal increase from 33.7 per cent in the 2005 survey. The FinScope study further revealed that access to finance for women was relatively poor in relation to their male counterparts.
This makes it more difficult for central banks in individual countries to affect the domestic long-term rate through the expectations hypothesis – the interest-rate channel becomes less predictable. Moreover, the large capital flows can have effects on the exchange rate and risk premiums that complicate monetary policy’s exchange rate channel. If long-term interest rates and exchange rates previously had a reasonably close connection with the short-term rate, one can say that they are now affected to a large degree by factors abroad. Monetary policy can also be complicated by the capital flows affecting financial stability. One hypothesis that has some support in empirical research is that the capital flows can be regarded as part of a global financial cycle.28 It appears that one of the driving forces behind the cycle is the monetary policy conducted in large countries, particularly the United States. In terms of Figure 1, it may thus be the case that the financial cycle is to a large extent driven by global factors. Of course, the global financial cycle does not need to be in tune with the macroeconomic conditions in individual countries. When I discussed the economic cycle and the financial cycle in an individual country, I noted that these do not need to be synchronised. And if the financial cycle is moreover affected by global conditions, this conclusion will of course be reinforced.

The conclusion was that underlying inflation excluding energy, which was assessed as the best mirror of cyclically-related inflationary pressure, was expected to be in line with the target 1-2 years ahead, and this was why the repo rate was left unchanged. The information received so far since December does not appear to significantly alter the picture of a recovery in economic growth. However, there may be a risk that the weak labour market situation will last longer than anticipated and have repercussions for growth and inflation through weaker private consumption. Now that we are in the midst of compiling the data on which to base our decision at the February meeting, it looks as though the new information received since December gives scope for a further slight downward adjustment to the forecast of domestic cost pressure. This is because it seems that labour market growth will be somewhat weaker than expected, and thereby also the rate of wage increases, and the fact that productivity growth during the first three quarters appears to have been somewhat more favourable than we had anticipated. The risk of contagion effects via energy prices also appears to have declined. However, as we said, we are in the midst of our forecasting work and not all of the information is complete as yet. Our monetary policy meeting will be held on 5 February and this is when the final decision on the repo rate will be made. Thank you. 4  BIS Review 7/2004
I will then discuss how the risk management function needs to be adjusted to the new economic and financial environment. Finally, I will quickly describe some of the challenges ahead for central banks as risk managers. 2. Lessons from the financial crisis  So let me start by referring to some of the key lessons from the financial crisis. From the selection of topics for this conference, with its focus on innovations in risk management and reforms to the regulatory frameworks, it is clear that we have learned very valuable lessons from the crisis. However, the fact that we are drawing lessons from the crisis is not only illustrated by the novelty of the issues under discussion, but also by the different approaches taken to examine topics that were regularly discussed in Risk and Return conferences in pre-crisis times. As examples of topics that were “usual suspects” in past conferences, but are now presented in a different manner, let me mention two specific issues: (1) the broadening of investment universes, and (2) the advantages in terms of yield pick-up of investing in new markets and asset classes. In the past the analysis on these issues would have typically concentrated on the return aspects and portfolio management considerations, with only limited space for risk-related considerations in the exposition, the latter usually consisting of some simple references to the tracking error of certain assets against the benchmark portfolios.

In this regard, we should also be ready for new crises that will be different from the present one. No matter whether the next crisis ahead will be due to increases in the prices of oil and food, to geopolitical tensions or to the bust of potential asset bubbles in emerging markets, we should stand ready to react to any of those possible shocks. In order to be prepared we need to understand that finance and economics are not natural sciences, there are no “fundamental laws” to discover, but they are more about modelling and understanding the outcome of interactions between humans in human-made systems. That is, probably, one of the biggest challenges risk managers need to face. 4. Challenges ahead for central banks as risk managers  Last but not least, I would like to quickly refer to the challenges ahead for central banks. I’m not going to refer to the challenges faced by those central banks which are also banking supervisors or regulators, which are relevant enough to be deserve a full conference on their own, but I will focus on the crisis and risk management function in central banks. The job of central banks is akin to that of risk managers, in the sense that they have to deal with crisis situations and manage risks to the economy using a limited toolbox.
That criticism in my view was wholly unjustified. It was a classic example of expecting too much from monetary policy. The role of a central bank is - as I said earlier - essentially to maintain overall macroeconomic stability, and the measure of its success is consistently low inflation. On that criterion the ECB has been substantially successful. The Euro area economy grew at above trend with core inflation nevertheless remaining within the ECB's tolerance range of 0-2%, even though the headline measure of inflation, influenced by rising energy and food prices which were essentially shocks on the supply side, and by the weakness of the exchange rate, moved above that range. Had the ECB attempted during this period to target the exchange rate, presumably by raising interest rates, it is not at all obvious to me that it would have succeeded; and even if it had, the likelihood is that it would have put the internal stability of the euro-zone economy at risk. More recently the ECB has sometimes been criticised as slow to respond to the weakening of the US economy. Implicit in that criticism no doubt is a strong conviction about the extent and duration of the US slowdown and its likely impact on the euro area. As I have said there is in fact a great deal of uncertainty about that.

Compared to the start of the year, the expected timing of any further Fed interest rate hikes has been pushed back, and the expected upward trajectory of U.S. short-term rates is now much flatter. There are several reasons to explain these shifts. First, assessments of the neutral real shortterm interest rate have declined as economic growth has consistently fallen short of consensus forecasts. With the U.S. economy having grown at only a 2.1 percent annual rate over the past seven years, it has become harder to sustain the view that the neutral real short-term interest rate is close to, or will soon be close to, its historical level of around 2 percent. Estimates of the neutral real short-term interest rate obtained from many of the DSGE models used within the Federal Reserve System are currently clustered around zero, and this seems reasonable to me. An implication is that at present there is only a small gap between the actual real shortterm rate of about -1 percent and the neutral real short-term rate. In other words, U.S. monetary policy is accommodative, but only moderately so. In addition, I suspect that many have come to question the view that headwinds from the financial crisis are temporarily depressing the neutral short-term rate, and that the neutral short-term rate will significantly rise in the near-future as these headwinds dissipate.
Developed countries must make costly, complex, yet unavoidable adjustments. The experience of the developed world confirms the need to safeguard macroeconomic balances, both public and private, as well as a strong, well regulated financial system. The fragility of financial systems and fiscal accounts of some developed economies have caused a recoiling of living standards and could compromise their growth ability for a long while. 6  BIS central bankers’ speeches  Figure 1 Gross domestic product  (index, IV.2007=100, quarterly series) 115  115  110  110  105  105  100  100  95  95  90  90  IV.07  IV.08 Chile  IV.09 U.S.  Eurozone  IV.10 U.K.  Sources: Central Bank of Chile and Bloomberg. Figure 2 Real exchange rates around the world (index, July 1994-July 2011 average = 100)  180  160  160  140  140  120  120  100  100  80  80  60  60 Russia Brazil Czech Rep. Australia Hungary Canada Indonesia Switzerland N. Zealand Poland India Philippines Turkey China Chile Thailand South Africa Israel Norway Mexico Peru Malaysia Eurozone Japan South Korea Sweden U.S. U.K.  180  Range (*)  Spot  Average  (*) The range shows peaks and troughs of the local currency during indicated period. The scale has been adjusted to 180. The peak value for this country was 225. Sources: Central Bank of Chile and Bank for International Settlements (BIS).

In fact, the closure of domestic output gaps – i.e., the difference between actual and trend growth – that a year ago we expected to occur over the course of 2011, took place in the first part of the year. The unemployment rate has fallen rapidly and is now below its historic average. Inflation, meanwhile, has concluded a process of convergence to the 3-percent target. Inflation fears resurfaced during the first quarter of this year, but subsided after the Board’s monetary policy decisions and the changes in the external macroeconomic scenario. We have thus arrived at a situation where the monetary policy interest rate (MPR) stands within a range that is considered normal. However, the events of 2008 still cast their shadow over the world economic outlook. Despite the time elapsed and the economic and financial measures adopted by economic policymakers around the world, we are still seeing the aftereffects of this episode. The underlying problems that caused the disaster have not been totally resolved, and continue to hold back the recovery of private demand. Added to this is the erosion of trust in the public finance management in some Eurozone members and in the U.S., which prompted a new episode of financial stress in early August, and still another one a few days ago. The world economy is going through an extremely complex situation. Certainly, Chile has tools to soften the impact of adverse external conditions.
In terms of data, however, this is the best we have at the moment. So, notwithstanding substantial data issues, the question is how can we, as policymakers, influence these unobservables? 5  While we can expect a re-launch of capital investment growth, I am quite certain that growth rate that we have witnessed in the 2000s, with strong inflow of FDIs and real estate bubbles in some countries will not be seen again in the near future. That is why so much focus is on the total factor productivity, ultimately seen as the only source of long-term growth. Of course, the TFP is an unobservable variable, usually measured by the Solow residual. What drives the TFP growth is a much trickier question. Is it innovations, technology advances? For us as policy makers, understanding the determinants of technology adoption, the TFP growth, is key, as this gives us the channel to act through. There is an increasing number of theory and empirical papers linking development and the adoption of technologies to the role of institutions defined in a very broad way. And data seem to be supportive of the link – there is a strong positive relationship between the quality of institutions and human capital on one side, and growth on the other. But then, when it comes to the quality of institutions, or human capital, there has been little or no convergence of the CEE.

However, today, when it is clear that bank-based systems are inferior to more capital market-based ones, and when loan-to-deposit ratios are close to one, the goal should probably be to turn towards developing more efficient structures of the financial markets. How should we, as policymakers, react to this? What are the next steps that we have to take? How much do we know? Well, we know that when it comes to standards of living, in the long-run it is all about labour productivity. And labour productivity, in turn, depends on the amount of capital per unit of labour and something that we call total factor productivity (TFP) or multifactor productivity. The problem is that both of these components are hard, or impossible, to measure, so we have to estimate them, and that is by no means an easy task. Much has been said about the TFP growth in the context of the discussions on the slowdown in the productivity growth, or discussions of the convergence in Europe. However, if you try to decompose the data that are used in these discussions, I believe that you'll come to realise that there are serious measurement issues. For example, it is hard to believe that there has been almost no increase in capital stock per worker in Romania and at the same time, the country managed to increase its TFP by far the fastest rate compared to any other country in the region, or to believe that an almost similar situation was seen in Slovakia.