Revealing interview with Riksbank Deputy Governor Karolina Ekholm about Riksbank inflation forecasts

In a detailed interview with the News Agency Direkt, then Riksbank Deputy Governor Karolina Ekholm reveals how the Riksbank’s judgmental adjustments of the model forecasts have given the Riksbank’s inflation forecasts an upward bias. She also points out that I warned about this upward bias and explicitly entered reservations about the inflation forecast from december 2012. It was thus not a secret at the Riksbank that there were problems with the forecast.  Continue reading

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Why emphasize the debt-to-income ratio when there are better measures of risks with household debt?

New Ekonomistas post. This is an English translation.

As is well known, the Riksbank frequently publishes a figure of the debt-to-income ratio, that is, household debt as a percentage of disposable income. But the debt-to-income ratio is an unsuitable risk measure, since it at a closer look hardly gives any information about any risks with household debt. Among aggregate risk measures, the interest-to-income ratio, that is, household interest payments as a percentage of disposable income, is a better measure, since a low interest-to-income ratio indicates good payment capacity and resilience against interest-rate increases.  The debt-to-assets ratio, that is, household debt as a percentage of total assets, is also a better risk measure, since a low debt-to-assets ratio means a high net worth-to-assets ratio and high resilience against a fall in asset values. In order to present the best possible information and to avoid giving a misleading impression, figures of these measures should be published instead. If one still insists on publishing the debt-to-income ratio, on should always also publish the better measures, the interest-to-income and debt-to-total-assets ratios.  Continue reading

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Crucial factual errors in IMF report on Sweden

[English translation of new Ekonomistas post.]

IMF’s annual so-called Article IV report on Sweden is now available on IMF’s web site. I have previously noted that the IMF mission’s concluding statement in June was partial and biased. The final report continues in the same vein. Given that the report to a large extent deals with household debt, it is particularly remarkable that it contains crucial factual errors about household debt and misleading information about housing prices. It gives the definite impression of having been guided by preconceptions rather than facts and analysis. Continue reading

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Strange dissent by Ingves and af Jochnick – their policy-rate path apparently implies a more expansionary monetary policy

[English translation of a new Ekonomistas post (in Swedish).]

At the latest monetary-policy meeting, Governor Stefan Ingves and First Deputy Governor Kerstin af Jochnick dissented and entered a reservation against the decision to lower the policy rate to 0,25 percent and against the policy-rate path in the Monetary Policy Report. They obviously thought that their preferred policy-rate path would imply a less expansionary monetary policy than the majority’s path. But their path instead actually seems to imply a more expansionary monetary policy, since it apparently implies a lower average policy rate during the forecasting period. Continue reading

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The Riksbank cannot maintain financial stability by debating

“Riksbanken kan inte upprätthålla finansiell stabilitet genom att debattera” (in Swedish), 2nd reply to Carl B. Hamilton on di.se, the website of Dagens Industri. Also on Ekonomistas (in Swedish, with links).

Carl B. Hamilton seems to think that the Riksbank by op-eds, analyses and discussions in the new Financial Stability Council has sufficient instruments to affect financial stability to warrant financial stability as an objective. But the Council is only a forum for discussions and cannot make decisions. Since the Riksbank has no decision power over micro- and macroprudential instruments (that power is with Finansinspektionen, the Swedish FSA), the Riksbank cannot be accountable for financial stability and not have financial stability as an objective.   Continue reading

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The household debt ratio fell in the first quarter of 2014 – now at the same level as in the fall of 2010

[English translation of new Economistas post (in Swedish).]

The household debt ratio – household debt as a percentage of disposable income – is an unsuitable risk measure and there are much better ones. In spite of this, the Riksbank and others attach large weight to how the debt ratio develops. For those who consider the debt ratio a relevant risk measure, it should be somewhat comforting that the debt ratio fell somewhat in the first quarter of 2014, in contrast to some alarmist warnings about rapidly increasing debt.  Continue reading

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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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