Consultation response to the Riksbank’s memorandum “Change of target variable and introduction of variation band”
Peter Englund and Lars E.O. Svensson, Stockholm School of Economics pdf Swedish Ekonomistas
The Riksbank’s proposal for a change of target variable and the introduction of a variation band is rejected. There is no urgent need for these changes now, and it is inappropriate to forestall the parliamentary committee that currently reviews the monetary policy framework, including the issue of the choice of target variables and a possible variation band. The proposal for introduction of a variation band is specifically rejected. It does not serve any purpose and can, in practice, create a significant ambiguity about the inflation target, result in less effective anchoring of inflation expectations, and make it more difficult both to evaluate the Riksbank’s target achievement and to hold the Riksbank accountable for fulfilling the monetary policy goals. Continue reading
Peter Englund och Lars E.O. Svensson, Handelshögskolan i Stockholm pdf English Ekonomistas
Riksbankens förslag om byte av målvariabel och introduktion av ett variationsband avstyrks. Det finns inte något akut behov av dessa förändringar nu och det är olämpligt att föregripa den parlamentariska kommitté som gör en översyn av det penningpolitiska ramverket som bl.a. innefattar valet av målvariabel och eventuellt variationsband. Förslaget om introduktion av ett variationsband avstyrks speciellt. Det fyller inte någon funktion och kan i praktiken skapa en betydande oklarhet om penningpolitikens mål, ge ett sämre ankare för inflationsförväntningarna samt försvåra såväl en utvärdering av måluppfyllelsen som ett ansvarsutkrävande av Riksbanken. Continue reading
FOMC April 26-27 minutes on the relationship between monetary policy and financial stability (pp. 2-3):
Most participants judged that the benefits of using monetary policy to address threats to financial stability would typically be outweighed by the costs associated with deviations from the Committee’s employment and price-stability objectives induced by such actions; some also noted that the benefits are highly uncertain.
In an interview today, April 16, in Svenska Dagbladet, Kenneth Rogoff is quoted as saying (my translation from Swedish):
“I know that there are commentators, such as Lars EO Svensson, who don’t believe that debt is affected by interest rates.”
It is wrong to say that I would believe that debt is not affected by interest rates. Instead, some of my work has dealt with precisely how monetary policy affects household indebtedness. For instance, this paper deals with how monetary policy affects real debt and the debt-to-GDP ratio.
My view, and the result of the Riksbank’s own calculations (se here and here), is that the impact of monetary policy on household real debt and debt ratios in Sweden is normally very small (and may even be of either sign). The impact on any risks associated with household debt is negligible. Therefore, monetary policy in Sweden should focus on the traditional objectives of monetary policy, namely to stabilize inflation around the inflation target and unemployment around a long-run sustainable rate.
Mark Gertler, John Taylor, Mohamed El Erian, Michael Bordo, and me on how Ben Bernanke will be remembered, Wall Street Journal, December 17, 2013.
I enter a reservation against the Account of monetary policy in 2012, because I consider the account to be incomplete and in several respects misleading and thus it does not offer an adequate basis for an assessment of the Riksbank’s monetary policy. Read more (English Swedish)
Target attainment is currently poor, since inflation is way below the inflation target and unemployment is way above a reasonable long-run sustainable rate. An important issue is whether target attainment could have been better with a more expansionary monetary policy, but a thorough analysis of this issue is missing in the account. That monetary policy has not been more expansionary is, as far as can be judged, because it has to a great extent been conducted for the purpose of limiting household debt. However, extensive research and several inquiries show quite unequivocally that the policy rate has little effect on the household debt ratio. The fact that this is the case is not indicated in the account. A more expansionary monetary policy with an unchanged low policy rate since 2010 would according to a preliminary calculation have held CPIF inflation close to the target, led to much lower unemployment and led to an insignificantly higher debt ratio in the short term, while not affecting the debt ratio in the long term. Read more (English Swedish)
Reservation (English) Reservation (Swedish) Account of monetary policy 2012 (English) Redogörelse för penningpolitiken 2012 (Swedish)
Reservation by Deputy Governors Karolina Ekholm and Lars E.O. Svensson Against Riksbank Decision to Increase Its Foreign Exchange Reserves, December 6, 2012. English Swedish. Riksbank announcement. Editorial by Peter Wolodarski, Dagens Nyheter, December 16, 2012 (Swedish).
Vi reserverar oss mot beslutet att förstärka valutareserven med motsvarande 100 miljarder kronor, eftersom vi anser att ett bättre alternativ är att ingå ett avtal med Riksgäldskontoret om att valutareserven ska återställas inom 10 bankdagar efter beslut om att ta den i anspråk för likviditetsstöd. Ett sådant avtal har fördelen att skattebetalarna slipper betala för bankernas riskfyllda upplåning i utländsk valuta.
We enter a reservation against the decision to reinforce the foreign exchange reserves by the equivalent of SEK 100 billion, as we consider a better alternative would be to enter into an agreement with the Swedish National Debt Office that the foreign exchange reserves will be restored within 10 banking days after a decision has been made to use the reserves for liquidity assistance. Such an agreement would have the advantage that the taxpayers would not need to pay for the banks’ risky borrowing in foreign currencies.
New statement in Dagens Nyheter, September 8, 2012: “Jag beklagar djupt hur uttalandet tolkats” (“I Deeply Regret How My Statement Has Been Interpreted,” in Swedish)
My introductory statement, “My View of Monetary Policy,” given at the meeting of Nationalekonomiska föreningen (the Swedish Economic Association) on “What Is the Executive Board’s View on Its Monetary Policy?”, Stockholm School of Economics, May 11, 2012, English Swedish