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.
This is what Janet Yellen said in a recent speech (p. 6, my emphasis):
The FOMC strives to avoid inflation slipping too far below its 2 percent objective because, at very low inflation rates, adverse economic developments could more easily push the economy into deflation. The limited historical experience with deflation shows that, once it starts, deflation can become entrenched and associated with prolonged periods of very weak economic performance.
A persistent bout of very low inflation carries other risks as well. With the federal funds rate currently near its lower limit, lower inflation translates into a higher real value for the federal funds rate, limiting the capacity of monetary policy to support the economy. Further, with longer-term inflation expectations anchored near 2 percent in recent years, persistent inflation well below this expected value increases the real burden of debt for households and firms, which may put a drag on economic activity.
But what is the Riksbank’s view on this issue? As far as I know, the majority of the executive board has avoided mentioning the issue. The only thing that exists may be what Stefan Ingves said at a press conference in December 2013, when he was asked whether the low inflation would increase household indebtedness (29 minutes into the press conference, in Swedish, my translation from English):
In this context, this with the inflation rate is not a particularly significant issue.
In spite of being considerably concerned about household indebtedness, Ingves and the rest of the majority of the executive board have not expressed any concerns or insights about the fact that lower inflation than expected increases the debt burden. Why is that?