Gauti Eggertsson, Lawrence H. Summers, 24 January 2019

Several central banks implemented negative policy rates in response to the financial crisis, but there is little consensus on the overall effect of this policy. This column examines the transmission of policy rates to bank lending rates, focusing on the case of Sweden. While the first two cuts in negative territory by the Riksbank appear to have been transmitted to lending rates, transmission seems to have broken down for the second two cuts. The findings suggest diminishing returns on interest rate cuts at negative rates.

Fredrik Andersson, Lars Jonung, 30 May 2016

The volume of credit to Swedish households has grown twice as fast as incomes since the mid-1990s. This has resulted in both rising house prices and rising household debt. This column argues that these trends expose Sweden to important economic vulnerabilities. Curbing these vulnerabilities will require prompt action by the authorities.

Lars E.O. Svensson, 05 July 2014

Sweden has pursued a tighter monetary policy than is necessary to achieve the inflation target in order to reduce risks associated with household indebtedness. The net benefit to ‘leaning against the wind’ has been hotly debated; this column argues strongly against it. By reducing inflation, the Riksbank has in fact increased household debt, and contractionary pressure has worsened the employment situation. The author estimates that the benefits to leaning are worth only 0.4% of the costs.

Lars E.O. Svensson, 10 October 2013

Leaning-against-the-wind monetary policy may lead to a Fisherian debt deflation, since it may lower prices below the anticipated level and therefore raise real debt above what was anticipated. This is what the Riksbank has done by keeping average inflation significantly below the inflation target for a long period. This has caused household real debt to be substantially higher than it would have been if inflation had been on target.

Lars E.O. Svensson, 09 September 2013

Sweden’s average inflation has consistently undershot its inflation target. This column argues that this has led to higher average unemployment and a higher household-debt ratio. The author, a former Deputy Governor of the Riksbank, argues that Sweden’s central bank is not fulfilling its mandate.

Lars E.O. Svensson, 04 September 2013

The Riksbank maintains high policy rates since it fears that a lower rate would increase the household-debt ratio. This column argues that a higher rate in fact leads to a higher debt ratio, not a lower one. The higher rate reduces nominal housing prices and new mortgages, but since the new mortgages are such a small share of total mortgages, the total nominal debt falls very slowly. Yet nominal GDP falls much faster, so the debt-to-GDP ratio rises.

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