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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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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Jag har stöd för mina beräkningar – Svar till Andersson och Jonung III

[Detta inlägg har publicerats i Dagens Industri.]

Frågan är om Riksbanken genom att åsidosätta inflationsmålet har orsakat att i genomsnitt ungefär 38.000 fler personer har varit arbetslösa under perioden 1997–2011. Man kan tycka att denna fråga är för allvarlig för att, i Lundaspexstil, raljera med och skämta om. Men det gör Fredrik Andersson och Lars Jonung i en debattartikel i Dagens industri den 5 juni. Bland alla försök till skämt finns dessutom bara två påståenden om fakta och data. Båda är osanna.

Continue reading

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Anders Borg about the Fiscal Policy Council evaluating the Riksbank’s monetary policy

[Ekonomistas post, in Swedish.]

In an op-ed in  Dagens Nyheter (English translation here), I argued that the democratic control of the Riksbank should be improved, since the Riksbank had neglected both fulfilling the inflation target and supporting the most important goal of Swedish economic policy, full employment. Among other things, I suggested that the Fiscal Policy Council should get additional resources and an expanded mandate to evaluate monetary policy. It may also be appropriate to move the new Fiscal and Monetary Policy Council to the Riksdag, the Swedish parliament. According to Bloomberg Finance Minister Anders Borg has now commented on the issue.  Continue reading

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New demands for amortization, while zero inflation eliminates the automatic amortization

[New Ekonomistas post (in Swedish). Here is an English translation.]

In a speech at the meeting of the Swedish Economic Association (Nationalekonomiska föreningen) on May 28, 2014, Riksbank Governor Stefan Ingves suggested a compulsory amortization requirement and showed some calculations for such a requirement that, with a 50-year amortization period, would result in a reduction of a given household loan of 2 percent per year. Strangely enough, he avoided mentioning that the zero inflation Sweden has suffered the last few years, caused by the Riksbank’s leaning against the wind, has eliminated the automatic amortization of 2 percent per year that an inflation rate equal to the target of 2 percent otherwise would have caused.  Continue reading

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