Weak defense from Ingves and Jansson

New Ekonomistas post. Here is an English translation.

Wolfgang Münchau (“What central banks should do to deal with bubbles,” Financial Times, July 14) has stated that a monetary policy experiment with calamitous results has been conducted in Sweden. A letter to Financial Times from Stefan Ingves and Per Jansson, Governor and Deputy Governor of the Riksbank, (“Monetary policy has had positive results in Sweden,” July 24) tries to defend the Riksbank’s policy. But the letter is full of misleading statements and the defense does not stand up to scrutiny.  Continue reading

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The Riksbank and financial stability: No instruments, therefore not an objective

(English translation of an article of mine on the website of the Swedish business newspaper Dagens Industri, July 21, 2014.)

Should the Riksbank have financial stability as an objective besides price stability? According to an op-ed by Carl B. Hamilton in Dagens Industri on July 17, the answer is yes.[1]  According to Hamilton, this is even a practice already established by the Riksdag (the Swedish parliament). The Riksbank Act needs to be amended, but only as a formality.

But Hamilton forgets that the Riksbank has no effective policy instruments to affect financial stability, except in connection with the management of financial crises. He also forgets that the government with the support of seven parties in the Riksdag – including Folkpartiet (the Liberal Party) – has decided that the Riksbank will not receive any such instruments. Without the instruments, the Riksbank neither can nor should have financial stability as an objective.  Continue reading

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Riksbanken och den finansiella stabiliteten: Inga medel, därför inget mål

(Debattartikel publicerad under rubriken “Inga medel, därför inget mål” på Dagens Industris websida 2014-07-21.)

Ska Riksbanken ha finansiell stabilitet som mål vid sidan av prisstabilitet? Enligt Carl B Hamiltons debattartikel i Dagens Industri den 17 juli är svaret ja. Det är till och med en av riksdagen redan etablerad princip, hävdar Hamilton. Riksbankslagen behöver ändras, men bara som en formalitet.

Men Hamilton glömmer att Riksbanken saknar effektiva medel att påverka den finansiella stabiliteten, utom i samband med hanteringen av finansiella kriser. Han glömmer också att regeringen med stöd av sju partier i riksdagen – inklusive Folkpartiet – beslutat att Riksbanken heller inte ska tilldelas några sådana medel. Utan medel varken kan eller bör Riksbanken ha finansiell stabilitet som mål.  Continue reading

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Why leaning against the wind is the wrong monetary policy for Sweden

[English translation of Ekonomistas post.]

In a new paper, ”Why Leaning Against the Wind is the Wrong Monetary Policy for Sweden,” which was presented at an NBER conference in Tokyo, June 20-21, I explain and summarize why leaning against the wind is the wrong monetary policy in Sweden.[1] According to the Riksbank’s own calculations, the benefit of this policy, in the form of lower risks from household debt, is completely insignificant compared to the cost in terms of higher unemployment and lower inflation. Since inflation has fallen much below the inflation target and households’ inflation expectations, the policy has instead actually increased households’ real debt burden and, if anything, increased any risks from the debt. Thereby, it has made more difficult the work of Finansinspektionens (FI, the Swedish FSA) to reduce any such risks.  Continue reading

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Objective and balanced report from the Swedish FSA – partial and biased statement from the IMF

This is an English translation of an Ekonomistas post published on June 16, 2014.

During the week of June 2, 2014, Finansinspektionen (FI, the Swedish Financial Supervisory Authority) presented its report on financial stability, Stability in the Financial System, which is objective and balanced. During the same week, an IMF mission, as part of the regular Article IV consultation with member states, presented the mission’s Concluding Statement on the Swedish economy and economic policy. That statement is unfortunately partial and biased. The contrast between FI’s report and the mission’s statement could hardly be greater.  Continue reading

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Monetary policy and financial-stability policy are different and normally best conducted independently

Monetary policy and financial-stability policy are different and normally best conducted independently,” general comments in the session “Monetary policy in the new regulatory environment” and discussion of Brunnermeier and Sannikov (2014), “Monetary analysis: Price and financial stability,” ECB Forum on Central Banking, Sintra, Portugal, May 25-27, 2014.

Program, papers and presentations at the ECB Forum.

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