Monthly Archives: April 2014

Fed and the Riksbank about low inflation and increased debt burden: A comparison

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

Central banks all over the world know that one of the problems with low inflation and deflation is that they increase the debt burden. But this insight seems, strangely enough, to be missing at the Riksbank, at least among the hawkish majority of the executive board. This is apparent when one compares statements of Fed Chair Janet Yellen and Riksbank Governor Stefan Ingves on this issue.  Continue reading

Svar till Andersson och Jonung I (Reply to Andersson and Jonung I, in Swedish)

Fredrik Andersson och Lars Jonung framför kritik mot min analys av och mina slutsatser om Riksbankens penningpolitik, dels i en artikel i Ekonomisk Debatt 3/2014 (Andersson och Jonung 2014), dels i en intervju av Jonung i Dagens industri 2014-04-17. Här är mitt svar om artikeln. Här finns ett kort svar till intervjun. Här är ett kort svar till deras replik.

Kritiken kan sammanfattas i tre punkter:

(1) I motsats till vad jag hävdat (t.ex. i Svensson 2014), skulle Riksbanken ha uppfyllt inflationsmålet.

(2) Min skattning i Svensson (2013a), av hur mycket högre den genomsnittliga arbetslösheten under 1997-2011 blivit på grund av lägre inflation än målet, skulle inte vara robust. Den skulle bygga på en för enkel modell och bortse från att inflationsförväntningarna har varierat. Mina resultat skulle inte hålla om hänsyn tas till varierande inflationsförväntningar. Mina resultat skulle inte heller hålla om man jämför med andra skattningar av jämviktsarbetslösheten.

(3) Riksbanken skulle ha begränsad möjlighet att genom penningpolitiken påverka sysselsättning och arbetslöshet i en liten öppen ekonomi som den svenska. Riksbanken borde inte ha sysselsättning och arbetslöshet som mål.

Andersson och Jonung tycks dock missta sig på samtliga punkter.      Continue reading

Misleading statement in interview with Kenneth Rogoff in Svenska Dagbladet

In an interview today, April 16, in Svenska Dagbladet, Kenneth Rogoff is quoted as saying (my translation from Swedish):

“I know that there are commentators, such as Lars EO Svensson, who don’t believe that debt is affected by interest rates.”

It is wrong to say that I would believe that debt is not affected by interest rates. Instead, some of my work has dealt with precisely how monetary policy affects household indebtedness. For instance, this paper deals with how monetary policy affects real debt and the debt-to-GDP ratio.

My view, and the result of the Riksbank’s own calculations (se here and here), is that the impact of monetary policy on household real debt and debt ratios in Sweden is normally very small (and may even be of either sign). The impact on any risks associated with household debt is negligible. Therefore, monetary policy in Sweden should focus on the traditional objectives of monetary policy, namely to stabilize inflation around the inflation target and unemployment around a long-run sustainable rate.

Deflation in Sweden: Questions and answers

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

Sweden has deflation, that is, negative inflation. According to Statistics Sweden, CPI inflation in March was minus 0.6 percent. As we can see in the figure below, CPI inflation has been around zero since November 2012, and since January 2014 it has been negative. CPIF and HICP inflation i March was zero and minus 0.4 percent, respectively. We see that CPIF and HICP inflation has been on a downward trend since the summer of 2013. The inflation rate in Sweden is now among the lowest in the world. What has caused the deflation, what are its consequences, could Sweden end up in a similar situation as Japan, and what can be done about the problem?

Update October 14: Data trough September 2014 are not looking good. Continue reading

The Riksbank’s continued contradictions and evasive answers about household debt

English translation of Ekonomistas post (in Swedish).

At the latest policy meeting and decision, the Riksbank repeated its statements that a lower policy rate would increase the risks associated with household indebtedness. At the same time these statements are contradicted by the Riksbank’s own analysis. According to this, the cost of a lower policy rate is only about 0.4 percent of the benefit, and hence negligible relative to the benefit. On a direct question about this at the latest press conference, Governor Ingves continued to give evasive answers.

Continue reading