Category Archives: Ekonomistas

Currency depreciation with a binding lower bound for the policy rate

[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

Difficult for Deputy Governor Per Jansson to defend the Riksbank

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

Major differences between the majority and minority of the Riksbank Executive Board

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 get different results?

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.)

Lars Jonung and the truth

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

Revealing interview with Riksbank Deputy Governor Karolina Ekholm about Riksbank inflation forecasts

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

Why emphasize the debt-to-income ratio when there are better measures of risks with household debt?

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

Crucial factual errors in IMF report on Sweden

[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

Strange dissent by Ingves and af Jochnick – their policy-rate path apparently implies a more expansionary monetary policy

[English translation of a new Ekonomistas post (in Swedish).]

At the latest monetary-policy meeting, Governor Stefan Ingves and First Deputy Governor Kerstin af Jochnick dissented and entered a reservation against the decision to lower the policy rate to 0,25 percent and against the policy-rate path in the Monetary Policy Report. They obviously thought that their preferred policy-rate path would imply a less expansionary monetary policy than the majority’s path. But their path instead actually seems to imply a more expansionary monetary policy, since it apparently implies a lower average policy rate during the forecasting period. Continue reading

The Riksbank cannot maintain financial stability by debating

“Riksbanken kan inte upprätthålla finansiell stabilitet genom att debattera” (in Swedish), 2nd reply to Carl B. Hamilton on di.se, the website of Dagens Industri. Also on Ekonomistas (in Swedish, with links).

Carl B. Hamilton seems to think that the Riksbank by op-eds, analyses and discussions in the new Financial Stability Council has sufficient instruments to affect financial stability to warrant financial stability as an objective. But the Council is only a forum for discussions and cannot make decisions. Since the Riksbank has no decision power over micro- and macroprudential instruments (that power is with Finansinspektionen, the Swedish FSA), the Riksbank cannot be accountable for financial stability and not have financial stability as an objective.   Continue reading

The household debt ratio fell in the first quarter of 2014 – now at the same level as in the fall of 2010

[English translation of new Economistas post (in Swedish).]

The household debt ratio – household debt as a percentage of disposable income – is an unsuitable risk measure and there are much better ones. In spite of this, the Riksbank and others attach large weight to how the debt ratio develops. For those who consider the debt ratio a relevant risk measure, it should be somewhat comforting that the debt ratio fell somewhat in the first quarter of 2014, in contrast to some alarmist warnings about rapidly increasing debt.  Continue reading

Weak defense from Ingves and Jansson

New Ekonomistas post. Here is an English translation.

Wolfgang Münchau (“What central banks should do to deal with bubbles,” Financial Times, July 14) has stated that a monetary policy experiment with calamitous results has been conducted in Sweden. A letter to Financial Times from Stefan Ingves and Per Jansson, Governor and Deputy Governor of the Riksbank, (“Monetary policy has had positive results in Sweden,” July 24) tries to defend the Riksbank’s policy. But the letter is full of misleading statements and the defense does not stand up to scrutiny.  Continue reading