The Riksbank is wrong about the debt: Higher policy rates increase rather than decrease the household-debt ratio

Lars E.O. Svensson 04 September 2013

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In the last few years, the Riksbank has conducted a monetary policy that has led to substantially lower inflation than the inflation target and unnecessarily high unemployment. The Riksbank has more recently justified this policy by maintaining that a lower policy rate would increase the household-debt ratio (the ratio of debt to disposable income) and thereby any risks associated with the debt.

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Topics:  Monetary policy

Tags:  Sweden, Riksbank, household debt

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

Lars E.O. Svensson 05 July 2014

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There is a lively ongoing debate about whether raising interest rates beyond the level needed to stabilise prices – ‘leaning against the wind’ – is a justified modification of flexible inflation targeting (as discussed in Smets 2013). In a new paper, I explain why leaning against the wind is the wrong monetary policy for Sweden (Svensson 2014).

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Topics:  Monetary policy

Tags:  Leaning against the wind, Riksbank, lean vs clean

‘Leaning against the wind’, debt deflation, and the Riksbank

Lars E.O. Svensson 10 October 2013

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A dangerous thing concerning debt is what Irving Fisher (1933) called ”debt deflation.” It is usually described as deflation causing the real value of nominal debt to increase. Loan-to-value and loan-to-income ratios also increase, since the debt is fixed in nominal terms but the nominal value of assets and income fall. This may hurt the economy through bankruptcies, deleveraging, and fire sales.

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Topics:  Monetary policy

Tags:  Leaning against the wind, Riksbank, debt deflation

Is the Riksbank neglecting the price-stability objective, counteracting full employment, and increasing household debt?

Lars E.O. Svensson 09 September 2013

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How do we know whether or not the Riksbank is neglecting the price-stability objective? Could it be that the Riksbank is not only neglecting the price-stability objective but is also counteracting the Riksdag’s and the Government’s full-employment objective as well as increasing household indebtedness?

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Topics:  Monetary policy

Tags:  inflation targeting, Riksbank