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

A dangerous thing concerning debt is what Irving Fisher (1933) called ”debt deflation.” It is usually described as deflation causing the real value of nominal debt to increase. Loan-to-value and loan-to-income ratios also increase, since the debt is fixed in nominal terms but the nominal value of assets and income fall. This may hurt the economy through bankruptcies, deleveraging, and fire sales.

But the important thing with the concept of “debt deflation” is not deflation, that is, negative deflation. The important thing is that the price level becomes lower than previously anticipated. This implies that real debt and loan-to-value and loan-to-income ratios become higher than anticipated and planned for. Everyone has probably not realized that this is something that the Riksbank has caused by neglecting the objective of price stability and conducting a monetary policy that has resulted in inflation below target. Continue reading →

New Ekonomistas post (in Swedish).

New Ekonoministas post (in Swedish).

New Ekonomistas post (in Swedish).

New Ekonomistas post. This is an English translation:

What is meant by “without prejudice to the objective of price stability” when the Riksbank has an inflation target? How do we know whether or not the Riksbank is neglecting the price-stability objective? Could it be that the Riksbank is not only neglecting the price-stability objective but is also counteracting the Riksdag’s and the Government’s high-employment objective as well as increasing household indebtedness? Continue reading →

New Ekonomistas blog (in Swedish). Here is an English translation:

The Riksbank has conducted a monetary policy that has led to far too low inflation, far too high unemployment, and to a somewhat higher (not lower) debt ratio compared to if the policy rate had been left at 0.25 percent from the summer of 2010 until now. This is not a good result.

Inflation in Sweden is since a year far below the target, and unemployment is far above any reasonable estimate of a long-run sustainable rate. Target achievement for monetary policy is thus bad.

An obvious question in the light of the bad target achievement is whether monetary policy could have been conducted in a different way, such that target achievement would have been better. How would target achievement have been with a more expansionary policy during the last few years? This question can be answered with a so-called counterfactual analysis with the Riksbank’s model Ramses. Continue reading →