Why leaning against the wind is the wrong monetary policy for Sweden

[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 →

Objective and balanced report from the Swedish FSA – partial and biased statement from the IMF

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 →

How to weigh unemployment relative to inflation in monetary policy?

“How to weigh unemployment relative to inflation in monetary policy?“, panel discussion at Fulfilling the Full Employment Mandate, the 57th Economic Conference at the Federal Reserve Bank of Boston, April 12-13, 2013.  Journal of Money, Credit and Banking, Supplement to Vol. 46, No. 2 (October 2014), 183-188.
Correction: Page 186, 3rd paragraph, 2nd line and 4th paragraph, 2nd line: Should be “…above a long-run sustainable rate” instead of “…below a long-run sustainable rate.”

Jag har stöd för mina beräkningar – Svar till Andersson och Jonung III

[Detta inlägg har publicerats i Dagens Industri.]

Frågan är om Riksbanken genom att åsidosätta inflationsmålet har orsakat att i genomsnitt ungefär 38.000 fler personer har varit arbetslösa under perioden 1997–2011. Man kan tycka att denna fråga är för allvarlig för att, i Lundaspexstil, raljera med och skämta om. Men det gör Fredrik Andersson och Lars Jonung i en debattartikel i Dagens industri den 5 juni. Bland alla försök till skämt finns dessutom bara två påståenden om fakta och data. Båda är osanna.

Continue reading →

Anders Borg about the Fiscal Policy Council evaluating the Riksbank’s monetary policy

[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 demands for amortization, while zero inflation eliminates the automatic amortization

[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 →

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 →

The household debt ratio is an unsuitable risk measure – there are much better ones

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 →

The Riksbank’s new study of household debt – misleading conclusions, or deliberate disinformation?

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 →