[English translation of Ekonomistas post.]
Vox column

In a new paper, ”Why Leaning Against the Wind is the Wrong Monetary Policy for Sweden,” which was presented at an NBER conference in Tokyo, June 20-21, I explain and summarize why leaning against the wind is the wrong monetary policy in Sweden.[1] According to the Riksbank’s own calculations, the benefit of this policy, in the form of lower risks from household debt, is completely insignificant compared to the cost in terms of higher unemployment and lower inflation. Since inflation has fallen much below the inflation target and households’ inflation expectations, the policy has instead actually increased households’ real debt burden and, if anything, increased any risks from the debt. Thereby, it has made more difficult the work of Finansinspektionens (FI, the Swedish FSA) to reduce any such risks.  Continue reading →

This is an English translation of an Ekonomistas post published on June 16, 2014.

During the week of June 2, 2014, Finansinspektionen (FI, the Swedish Financial Supervisory Authority) presented its report on financial stability, Stability in the Financial System, which is objective and balanced. During the same week, an IMF mission, as part of the regular Article IV consultation with member states, presented the mission’s Concluding Statement on the Swedish economy and economic policy. That statement is unfortunately partial and biased. The contrast between FI’s report and the mission’s statement could hardly be greater.  Continue reading →

[Ekonomistas post, in Swedish.]

In an op-ed in  Dagens Nyheter (English translation here), I argued that the democratic control of the Riksbank should be improved, since the Riksbank had neglected both fulfilling the inflation target and supporting the most important goal of Swedish economic policy, full employment. Among other things, I suggested that the Fiscal Policy Council should get additional resources and an expanded mandate to evaluate monetary policy. It may also be appropriate to move the new Fiscal and Monetary Policy Council to the Riksdag, the Swedish parliament. According to Bloomberg Finance Minister Anders Borg has now commented on the issue.  Continue reading →

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

In a speech at the meeting of the Swedish Economic Association (Nationalekonomiska föreningen) on May 28, 2014, Riksbank Governor Stefan Ingves suggested a compulsory amortization requirement and showed some calculations for such a requirement that, with a 50-year amortization period, would result in a reduction of a given household loan of 2 percent per year. Strangely enough, he avoided mentioning that the zero inflation Sweden has suffered the last few years, caused by the Riksbank’s leaning against the wind, has eliminated the automatic amortization of 2 percent per year that an inflation rate equal to the target of 2 percent otherwise would have caused.  Continue reading →

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

The Riksbank focuses one-sidedly on the debt ratio, household debt relative to disposable income, as a measure of any risks associated with household debt. An example is the Riksbank’s latest Economic Commentary on household debt, which is discussed in this post. But on a closer examination, the debt ratio is an unsuitable risk measure. There are much better ones. And they give a very different picture of the risks associated with household debt.  Continue reading →

New Ekonomistas post. This is an English translation.

The Riksbank has, in a new Economic Commentary about household debt, presented with a press conference and a speech by executive board member Cecilia Skingsley, announced what seems to be dramatic conclusions and a big news item, which also been much mentioned in the media:

• The problems associated with debt would be both more extensive and more comprehensive than we have previously realized.
• Households would in general be highly indebted in relation to their incomes, above all low and middle-income earners.

However, the conclusions do not stand up to scrutiny. It appears that the media and general public have been misled.  Continue reading →

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 →

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 →