Category Archives: Articles

Monetary Mystique and the Fed’s Path Toward Increased Transparency

“Monetary Mystique and the Fed’s Path Toward Increased Transparency,” chapter, in  King, Robert G., and Alexander L. Wolman (eds.), Essays in Honor of Marvin Goodfriend: Economist and Central Banker, Federal Reserve Bank of Richmond, 2022, 289-300.

Abstract

Marvin Goodfriend’s paper “Monetary Mystique: Secrecy and Central Banking” is a masterpiece: It is an extremely well-written, meticulous, and fair analysis and critique of the Federal Reserve’s defense of its practice of secrecy in monetary policy and central banking. His critique was devastating, and he completely demolished the Federal Open Market Committee’s (FOMC) arguments in the most precise and convincing way. Nevertheless, it took the Fed many years to reach the current standards of transparency and accountability in monetary policy.

Amorteringskraven: Felaktiga grunder och negativa effekter

Finansinspektionen har de senaste åren infört amorteringskrav och genomdrivit en övrig åtstramning på bolånemarknaden. Detta har skett på felaktiga grunder, har negativa välfärds- och fördelningseffekter och försämrar bolånemarknadens funktionssätt. Syftet har varit att öka bolånetagarnas motståndskraft och minska risken för djupare lågkonjunkturer, men i själva verket minskar amorteringskraven motståndskraften och snarast ökar risken för djupare lågkonjunkturer. Detta hävdar jag i en rapport till Stockholms Handelskammare som presenteras idag. Rapporten. Bilder powerpoint pdf. Video.
Media: DI DN1 DN2 SvD

Sammanfattning

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Monetary Policy and Macroprudential Policy: Different and Separate?

“Monetary Policy and Macroprudential Policy: Different and Separate?” Canadian Journal of Economics (2018) 51(3) 802-827. Paper. Published article.

Abstract

The paper discusses how monetary and macroprudential policies can be distinguished, how appropriate goals for the two policies can be determined, whether the policies are best conducted separately or coordinately and by the same or different authorities, and how they can be coordinated when desired. The institutional frameworks in Canada, Sweden, and the UK are briefly compared. The Swedish example of monetary policy strongly “leaning against the wind” and the consecutive policy turnaround is summarized, as well as what estimates have been found of the costs and benefits of leaning against the wind. Continue reading →

Leaning Against the Wind: Costs and Benefits, Effects on Debt, Leaning in DSGE Models, and a Framework for Comparison of Results

“Leaning Against the Wind: Costs and Benefits, Effects on Debt, Leaning in DSGE Models, and a Framework for Comparison of Results,” International Journal of Central Banking 13 (September 2017) 385-408. CEPR DP 12226, NBER WP 23745.

Abstract:

The simple and transparent framework for cost-benefit analysis of leaning against the wind (LAW) in Svensson (JME 2017) and its main result are summarized. The analysis of the policy-rate effects on debt in Bauer and Granziera (IJCB 2017) does not seem to contradict that the effects may be small and of either sign. The analysis of LAW in DSGE models is complicated and the results of Gerdrup et al. (IJCB 2017) may not be robust. The Svensson (JME 2017) framework may allow comparison and evaluation of old and new approaches and their results. As an example, it is shown that these three papers result in very different marginal costs of LAW and that a realistic policy-rate effect on unemployment is crucial.

JEL Codes: E52, E58, G01

New publication: “Cost-Benefit Analysis of Leaning Against the Wind”

Update, August 2017: “Cost-Benefit Analysis of Leaning Against the Wind,” published in Journal of Monetary Economics 90 (2017) 193-213.

The first version, under the title “Cost-Benefit Analysis of Leaning Against the Wind: Are Costs Larger Also with Less Effective Macroprudential Policy?”, was published as IMF Working Paper WP/16/3, January 2016.

New revision: “Cost-Benefit Analysis of Leaning Against the Wind”

Update, August 2017: “Cost-Benefit Analysis of Leaning Against the Wind,” published in Journal of Monetary Economics 90 (2017) 193-213.

The first version, under the title “Cost-Benefit Analysis of Leaning Against the Wind: Are Costs Larger Also with Less Effective Macroprudential Policy?”, was published as IMF Working Paper WP/16/3, January 2016.

Cost-Benefit Analysis of Leaning Against the Wind

“Cost-Benefit Analysis of Leaning Against the Wind,” Journal of Monetary Economics 90 (2017) 193-213. CEPR Discussion Paper DP11739, NBER Working Paper No. 21902. A previous version, with the longer title “Cost-Benefit Analysis of Leaning Against the Wind: Are Costs Larger Also with Less Effective Macroprudential Policy?”, was published as IMF Working Paper WP/16/3, January 2016.

Link to published version (Science Direct)

Data and Matlab program

Vox Column

Abstract:

A simple and transparent framework for cost-benefit analysis of “leaning against the wind” (LAW), that is, tighter monetary policy for financial-stability purposes, is presented. LAW has an obvious cost in the form of a weaker economy if no crisis occurs and possible benefits in the form of a lower probability and smaller magnitude of (financial) crises. A second cost—less obvious, overlooked by previous literature, but higher—is a weaker economy if a crisis occurs. For representative empirical benchmark estimates and reasonable assumptions the result is that the costs of LAW exceed the benefits by a substantial margin. The result is robust to alternative assumptions and estimates. A higher probability, larger magnitude, or longer duration of crises—typical consequences of ineffective macroprudential policy—all increase the margin of costs over benefits. To overturn the result, policy-interest-rate effects on the probability and magnitude of crises need to be more than 5–40 standard errors larger than the benchmark estimates.

A simple cost-benefit analysis of using monetary policy for financial-stability purposes

“A simple cost-benefit analysis of using monetary policy for financial-stability purposes,” in Blanchard, Olivier J., Raghuram Rajan, Kenneth S. Rogoff, and Lawrence H. Summers, eds., Progress and Confusion: The State of Macroeconomic Policy, MIT Press, forthcoming.

Contribution to the conference Rethinking Macro Policy III: Progress or Confusion?, Washington, DC, April 15-16, 2015.

Panel intro: What can monetary policy achieve and what is the relation between monetary policy and financial stability?

“What can monetary policy achieve and what is the relation between monetary policy and financial stability,” in Nowotny, E., Ritzberger-Grünwald, D. and Schuberth, H. (eds) (2015), The Challenge of Economic Rebalancing in Europe. Perspectives for CESEE Countries, Edward Elgar, chapt. 13, 177-183. Panel introduction (slides) at the Conference on European Economic Integration 2014: The Rebalancing Challenge in Europe – Perspectives for (central, eastern, and southeastern Europe (CESEE), Vienna, November 24-25, 2014.

New report: Penningpolitik och full sysselsättning (Monetary policy and full employment, in Swedish)

Riksbankens mandat bör förtydligas, sysselsättningen ges större vikt, den demokratiska kontrollen av Riksbanken skärpas och koordineringen av penningpolitiken och makrotillsynen förbättras. Det skriver jag i den nya underlagsrapporten Penningpolitik och full sysselsättning för LOs projekt Full sysselsättning och solidarisk lönepolitik.  Continue reading →

Improve the democratic control of the Riksbank

[This is an English translation of an op-ed article in Swedish, published in Dagens Nyheter, May 28, 2014. The op-ed is a summary of longer article in Swedish in the journal Ekonomisk debatt.]

Monetary policy in Sweden has failed. The Riksbank’s policy has led to too low inflation and too high unemployment. The reasons for the failure are that the governor has become too powerful, contrary to the original idea of an executive board with six independent members, and that the oversight and control of the Riksbank by the Riksdag has not worked. To remedy these shortcomings, the democratic control of the Riksbank needs to be enhanced and sharpened, the Riksdag’s appointment policy for the executive board needs to be improved, and the responsibilities of the Riksbank and Finansinspektionen for monetary and macroprudential policy needs to be clarified.  Continue reading →

DN Debatt: Skärp den demokratiska kontrollen av Riksbanken

Penningpolitiken har misslyckats. Riksbankens agerande har lett till för låg inflation och för hög arbetslöshet. Politiken brister på grund av att Riksbankschefen fått för stor makt och Riksdagens uppföljning och kontroll inte fungerar. För att avhjälpa bristerna bör den demokratiska kontrollen av Riksbanken skärpas, Riksbanksfullmäktiges utnämningspolitik förbättras, och ansvarfördelningen mellan penningpolitiken och makrotillsynen klargöras.

Artikel på DN Debatt, “Skärp den demokratiska kontrollen av Riksbanken,” 2014-05-28, mot bakgrund av en utförligare artikel i Ekonomisk debatt nr 4, “Riksbanken, måluppfyllelsen och den demokratiska kontrollen“.  Continue reading →