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 →

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 →

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

The Riksbank has recently delivered an account of monetary policy in 2013 to the Riksdag for the Finance Committee’s annual assessment of the monetary policy. This account is clearly a biased account from the majority of the Riksbank’s executive board, since it hides that the Riksbank’s own calculations support the minority.  Continue reading →

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

That low inflation and deflation increases the debt burden is well known to many. For instance, under the heading ”The spectre of eurozone deflation,” Martin Wolf recently wrote in the Financial Times: ”While falling prices would improve competitiveness, they would raise the real burden of private and public debt. This might well create another round of financial stresses.” Lower inflation than expected leads to higher real debt than anticipated and planned, and thereby increases the debt burden. In Sweden, a zero inflation rate during the last two years has led to real debt increasing in two years by SEK 40 000 for each borrowed SEK million, compared to if inflation had equaled the inflation target of 2 percent. But is this known and understood in the Riksbank? At the press conference after the publication of the Financial Stability Report on November 28, Governor Ingves was asked, if the low inflation rate made household indebtedness worse. What did he reply? Continue reading →

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

In an op-ed in the Swedish newspaper Dagens Nyheter on March 16, ”Felsyn att Riksbanken bara fokuserar på bostadsbubbla” (“Error in judgment that the Riksbank only focuses on a housing bubble,” in Swedish, my translation), Deputy Governors Per Jansson and Cecilia Skingsley repeat the statement that the Riksbank is not deviating from its mandate. They say this in spite of the fact that Riksbank’s “leaning against the wind” policy has led to inflation far below the target and unemployment far above a reasonable sustainable rate. They maintain that the higher policy rate, by checking increases in housing prices and household debt, would reduce the long-run risk of a future crisis and an accompanying worse macroeconomic outcome. But, strangely enough, they are quiet about the Riksbank’s own estimate that the policy rate has no long-run effect on household debt. Thereby their reasoning does not stand up to scrutiny, and the conclusion that the Riksbank is deviating from its mandate stands.  Continue reading →

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

According to the Riksbank’s own estimate, the policy-rate effect on household debt is so small that one can maintain that it is neither economically nor statistically significant. What did Governor Stefan Ingves answer to a question about this at a hearing in the Riksdag’s Finance Committee?  Continue reading →

Updated on May 3, 2015.
English translation of Ekonomistas post (in Swedish).

The Riksbank’s inflation target is 2 percent for CPI inflation. Average inflation since 1995, when the inflation target started to apply, is only 1.3 percent. Target achievement is thus bad, especially when one compares with other central banks that have had inflation target as long as the Riksbank. The Riksbank has usually defended itself by noting that target achievement is better for other measures of inflation, namely inflation measured by the price indices CPIF and previously CPIX. But a closer look shows that target achievement does not look better with CPIF and CPIX inflation. Neither does it look better with HICP inflation. Continue reading →

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

Lately the Riksbank has responded to some of the criticism against its policy, and the debate about monetary policy and household debt has become more lively. Don’t miss this: Continue reading →

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

Have we now seen the end for the Riksbank’s leaning against the wind, after the numbers reported by Executive Board member Martin Flodén’s Ekonomistas post (English translation) and the Riksbank’s latest Monetary Policy Report? According to these numbers, the “cost,” in terms of an increase in the unemployment rate, would be at least 10 times, and even at least 50 times the “benefit,” in the form of a better outcome in a possible future crisis.  Continue reading →