Matthew Klein has published an FT Alphaville post with many errors, “Sweden’s inflation record is less interesting than you think.” Its main point is that “the harshest criticisms [of the Riksbank] seem to be unjustified” and that “A reevaluation of the Riksbank’s recent record looks to be in order.” But the post’s reasoning and conclusion do not stand up to scrutiny. Continue reading
Update of previous post, now with data through March 2015 and with HICP inflation. CPIF inflation has an upward bias, since it excludes the effect on inflation of mortgage rates trending down but includes the effect of housing prices trending up. Nevertheless, counter to what is sometimes argued, the Riksbank’s target achievement does not look better with either CPIF and CPIX inflation, or with HICP inflation.
A previous post has been updated with new figures comparing the policy rates, inflation rates, and real policy rates in Sweden, the Eurozone, the UK, and the US. The Riksbank’s real policy rate increased by 3.5 percentage points to plus 1 during 2010-2011, whereas the real policy rates stayed low and negative in the other economies. According to this measure, the Riksbank’s policy was extremely tight during 2010-2013. More recently, the real policy rates has fallen in Sweden and risen in the other economies except the US. Continue reading
“Financial-stability policy – The Swedish experience,” presentation at the Seminar on Financial Stability Committees: Lessons from Early Experiences for Latin America, Central Reserve Bank of Peru, Lima, April 28, 2015. Slides.
This is an English translation of an Ekonomistas post.
The current Riksbank monetary policy is inconsistent. This creates uncertainty, which in turn weakens the efficiency of monetary policy. The detailed minutes of the monetary policy meetings are an important part of the Riksbank’s communication policy. Oddly enough, such minutes are missing from the Riksbank’s latest monetary policy decision, creating additional uncertainty about monetary policy. It is important that monetary policy is clear and credible. This increases the Riksbank’s power to create consensus among economic decision makers about the economic outlook and thereby reduce uncertainty, which is good for the economy.
Bernanke: Monetary policy in the future.
This is an English translation of a Swedish Ekonomistas guest post by Stefan Palmqvist, PhD, who works as an advisor at Finansinspektionen (the Swedish Financial Supervisory Authority). The opinions expressed are his own and not necessarily those of anyone else at Finansinspektionen.
In a post on Ekonomistas (in Swedish), Mats Persson discusses if the Riksbank should use more weapons than the repo rate. Mats argues that such actions would not do any harm at present, but that they also would not do much good. I mean that they certainly can do harm. The Riksbank’s current interest rate path indicates that the repo rate will be increased, while the Riksbank at the same time buys government bonds to bring down interest rates in general and to weaken the krona. With such a contradictory monetary policy the Riksbank’s possibility to influence expectations is reduced, which in turn can make it difficult to achieve the inflation target. Continue reading
“Forward guidance,” April 2015. New revision, now including the U.S. experience, of paper presented at at the RBNZ and IJCB conference “Reflections on 25 years of inflation targeting,” December 1-2, 2014, Wellington, New Zealand. Paper. Abstract.
Appendix: Slides for Sweden Feb 2007-Sep 2014, New Zealand Mar 2004-Mar 2014, U.S. Jan 2012-Mar 2015.
In his blog post “Should monetary policy take into account risks to financial stability?“, Ben Bernanke refers to the Swedish experience and my cost-benefit calculation, using the Riksbank’s own estimates, of the Riksbank’s leaning against the wind from the summer of 2010. According to this calculation, the benefit of the Riksbank’s actions was only about 0.4 percent of the cost.
- The need to keep monetary policy rates low to support an ailing economy, but at the same time, manage a boom in the housing market—that’s the scenario in which many policymakers around the world find themselves in. How should policymakers approach this type of scenario?
- Can monetary policy be used to manage problems associated with a housing boom?
- How can policymakers assess whether household debt poses a problem?
- So, if monetary policy is not suitable, how can any problems with household debt be handled?
“Inflation expectations: The Swedish experience,” presentation at the Inflation Expectations Symposium at the Federal Reserve Bank of Minneapolis, March 30, 2015.
Chair Janet Yellen on the recent Swedish experience of Riksbank policy tightening, in a speech at the conference “The New Normal for Monetary Policy,” Federal Reserve Bank of San Francisco, March 27, 2015:
The experience of Japan over the past 20 years, and Sweden more recently, demonstrates that a tightening of policy when the equilibrium real rate remains low can result in appreciable economic costs, delaying the attainment of a central bank’s price stability objective.
Discussion (slides) of the paper “Financial Stability and Optimal Interest-Rate Policy” by Andrea Ajello, Thomas Laubach, David López-Salido, and Taisuke Nakata, Federal Reserve Board, at the conference “The New Normal for Monetary Policy,” Federal Reserve Bank of San Francisco, March 27, 2015.