This is an English translation of a Swedish Ekonomistas guest post by Stefan Palmqvist, PhD, who works as an advisor at Finansinspektionen (the Swedish Financial Supervisory Authority). The opinions expressed are his own and not necessarily those of anyone else at Finansinspektionen.
In a post on Ekonomistas (in Swedish), Mats Persson discusses if the Riksbank should use more weapons than the repo rate. Mats argues that such actions would not do any harm at present, but that they also would not do much good. I mean that they certainly can do harm. The Riksbank’s current interest rate path indicates that the repo rate will be increased, while the Riksbank at the same time buys government bonds to bring down interest rates in general and to weaken the krona. With such a contradictory monetary policy the Riksbank’s possibility to influence expectations is reduced, which in turn can make it difficult to achieve the inflation target. Continue reading
“Helikopterpengar” (“Helicopter money,” in Swedish), Ekonomistas post.
English translation of Ekonomistas post.
An odd thing is the Riksbank’s repeated assertions, if not nagging, about how expansionary the Riksbank’s monetary policy is supposed to be. “A very expansionary monetary policy,” it says in the Monetary Policy Update December 2014, and so said the Governor Ingves at the press conference after the policy announcement. But according to what criterion would monetary policy be expansionary? According to standard criteria, including comparisons with other countries, the Riksbank’s monetary policy is by no means expansionary, but by all accounts quite contractionary. One may ask whether the Riksbank’s repeated assertions are due to ignorance or is an example of disinformation. Continue reading
English translation of Ekonomistas post (in Swedish)
International studies have shown that economic downturns that are preceded by a large increase in household debt tend to be deeper and more protracted. The Riksbank claims, however, that a high level of household debt leads to deeper economic downturns. The Riksbank refers to some international studies that are supposed to support its claim. But the Riksbank conceals that these studies rather contradict the Riksbank’s claim. This is yet another example that the Riksbank’s documents and reports, with Harry Flam’s words (in Swedish), are not “comprehensive, professional and impartial, but seem to be doctored to support a particular view.” Continue reading
[English translation of Ekonomistas post (in Swedish).]
When the policy rate has reached its lower bound (which is not necessarily zero, but perhaps minus 0.25 or even minus 0.50 percent), there are in addition to forward guidance about the future policy rate several so-called unconventional means to pursue more expansionary monetary policy, if needed. They include asset purchases (balance sheet policies) and exchange-rate policy. As inflation in Sweden has been around zero for several years, and unemployment has remained very high, such unconventional means may well be needed for the Riksbank to fulfill its mandate to stabilize both inflation around the inflation target and resource utilization around a long-run sustainable level.
The recent experience of the Czech National Bank may be very relevant in this context. The CNB has in the last year, in a situation with a binding lower bound for the policy rate, made an apparently successful monetary policy experiment by depreciating the Czech currency and introducing an exchange-rate floor in order to better meet its inflation target and get the economy out of its long recession. Continue reading
English translation of Ekonomistas post.
In a recent speech, Deputy Governor Per Jansson presents old arguments that I have already responded to, in an attempt to defend the Riksbank’s monetary policy and to criticize its by now several critics. One might think that Jansson might use his time to learn from the Riksbank’s mistakes instead of trying to attack its critics. In any case, a close examination of the facts and data shows that Jansson’s defense of the Riksbank fails. Continue reading
English translation of Ekonomistas blog in Swedish.
There has been a somewhat odd discussion about how much the majority and minority of the Riksbank Executive Board actually differed with regard to monetary policy from the summer of 2010 when the interest rate increases began. For instance, it has been claimed that I just wanted to have a marginally lower policy rate than the majority and that I wanted to raise rates almost as fast as the majority. But these claims have missed the fact that my policy-rate paths were only the first step towards a better monetary policy, not the only step. Above all, they have missed the fact that there were large principle differences between the majority and minority on how to conduct monetary policy. In this post I explain my reasoning, the policies my line of reasoning would have led to if I had had the majority with me, and how instead the majority came to turn monetary policy upside down. Continue reading
Does a trivial econometric error explain why Andersson and Jonung (2014) get different estimates of a Swedish Phillips curve than the very robust estimates that I get in Svensson (2015)? Yes, their trivial error is not to have done the standard test for weak instruments when using regressions with instrumental variables. Their instruments soundly fail the standard Cragg-Donald F-test. Their instruments are weak and as a consequence it is their estimates of the Phillips curve that are unreliable, not mine. See this note.
(A previous response in English to their criticism is available here.)
Update November 20, 2014: English translation of new Ekonomistas post.
A closer look reveals that the different results of Anderson and Jonung are due to a trivial econometric error.
Lars Jonung has repeatedly in Swedish media in sweeping terms criticized my estimate of the increase in average unemployment caused by the fact that average inflation in Sweden significantly undershot the target during 1997-2011. Every time I have replied and shown and pointed out that he is wrong on all counts, lately in this Ekonomistas post (in Swedish) and in Svenska Dagbladet (also in Swedish). Now, Fredrik Andersson and Jonung have written a long paper with a series of regressions which are supposed to show that my results are not robust. The idea of Andersson and Jonung is, despite the common practice in similar studies and despite econometric problems with overlapping data, to use annual inflation instead of quarterly inflation. However, on closer inspection, their regressions turn out to be misspecified and not reliable. When I examine corrected versions and run new regressions with annual inflation, they confirm my previous estimate. Again it seems that Jonung is wrong on all counts. Continue reading
New Ekonomistas post: “Ingves försöker försvara sig” (“Ingves tries to defend himself,” in Swedish).
Ekonomistas post: “Jonung and sanningen” (“Jonung and the truth”, i Swedish).
In a detailed interview with the News Agency Direkt, then Riksbank Deputy Governor Karolina Ekholm reveals how the Riksbank’s judgmental adjustments of the model forecasts have given the Riksbank’s inflation forecasts an upward bias. She also points out that I warned about this upward bias and explicitly entered reservations about the inflation forecast from december 2012. It was thus not a secret at the Riksbank that there were problems with the forecast. Continue reading
New Ekonomistas post. This is an English translation.
As is well known, the Riksbank frequently publishes a figure of the debt-to-income ratio, that is, household debt as a percentage of disposable income. But the debt-to-income ratio is an unsuitable risk measure, since it at a closer look hardly gives any information about any risks with household debt. Among aggregate risk measures, the interest-to-income ratio, that is, household interest payments as a percentage of disposable income, is a better measure, since a low interest-to-income ratio indicates good payment capacity and resilience against interest-rate increases. The debt-to-assets ratio, that is, household debt as a percentage of total assets, is also a better risk measure, since a low debt-to-assets ratio means a high net worth-to-assets ratio and high resilience against a fall in asset values. In order to present the best possible information and to avoid giving a misleading impression, figures of these measures should be published instead. If one still insists on publishing the debt-to-income ratio, on should always also publish the better measures, the interest-to-income and debt-to-total-assets ratios. Continue reading
[English translation of new Ekonomistas post.]
IMF’s annual so-called Article IV report on Sweden is now available on IMF’s web site. I have previously noted that the IMF mission’s concluding statement in June was partial and biased. The final report continues in the same vein. Given that the report to a large extent deals with household debt, it is particularly remarkable that it contains crucial factual errors about household debt and misleading information about housing prices. It gives the definite impression of having been guided by preconceptions rather than facts and analysis. Continue reading