New issue of the journal Sveriges Riksbank Economic Review
In this edition, we present articles about various monetary policy issues: the role of international dependence in domestic forecasts, the level of the inflation target, household expectations of mortgage rates and how monetary policy is conducted in Norway.
Do Swedish forecasters take sufficient account of Sweden's international dependence?
Jesper Lindé and André Reslow analyse whether Swedish forecasters take sufficient account of Sweden's strong international dependence in their forecasts of domestic developments. They compare the Riksbank's GDP growth and inflation forecasts with a number of major Swedish forecasters, including the National Institute of Economic Research.
The analysis shows that both the National Institute of Economic Research and the Riksbank take very little account of other countries in their long-term GDP and inflation forecasts. In the short term, however, the amount of consideration given to international inflation in the revised projections is in line with the comovement observed in the data, while the near-term revisions of the GDP forecasts still do not sufficiently factor the dependency on foreign GDP into account. They also show that the weak influence of other countries on the long-term forecast revisions is not due to Swedish monetary policy having been more active than the historical behaviour
What role does the level of the inflation target play?
Mikael Apel, Hanna Armelius and Carl Andreas Claussen analyse what academic research says about the optimal rate of inflation. They also discuss arguments in the policyoriented debate on the level of the inflation target. In the international discussion there have been proposals to increase the inflation target, which is at or close to 2 per cent in most developed countries.
One conclusion the authors draw is that the threshold for increasing the target is high, primarily because there are significant practical problems linked to abandoning a target that is already established and changing to another one. The article also analyses the challenges central banks may face in the near term as regards achieving the current targets.
Are household expectations of future mortgage rates realistic?
Erik Hjalmarsson and Pär Österholm analyse Swedish households' expectations of future mortgage rates against the backdrop of a debate suggesting that they perhaps have been unrealistically low in recent times. The surveys of household expectations published by the National Institute of Economic Research each month are used in order to estimate expectations of mortgage rates in the short, medium and long term.
The authors find that expectations in the long term are around 4.7 per cent, which is deemed in line with the long-term repo rate level plus a reasonable spread between the repo rate and the mortgage rate.
How is monetary policy in Norway conducted from a Swedish perspective?
Anders Vredin analyses how monetary policy in Norway is conducted from a Swedish perspective. In both Norway and Sweden, monetary policy is based on numerical inflation targets, but there are both similarities and differences in the monetary policy strategy. Historically, the differences between the countries' nominal and real interest rates have been small and the nominal exchange rate between the Norwegian and Swedish krona has been very stable. Overall, this indicates rather small differences in monetary policy between the two countries, despite differences in central bank independence. One reason for the small differences is that both Norway and Sweden are strongly dependent on developments abroad and have been affected by, for example, the decline in global real interest rates over the past decades.
The article finishes with a review of the challenges faced by the countries after the global financial crisis as regards monetary policy objectives and means and financial stability.
Read and enjoy!