Morning Must-Read: Lars Svensson: Leaning Against the Wind the Wrong Monetary Policy for Sweden

Lars Svensson: Why leaning against the wind is the wrong monetary policy for Sweden: “Sweden has pursued a tighter monetary policy than is necessary…

…to achieve the inflation target in order to reduce risks associated with household indebtedness…. According to the Riksbank’s own recently published 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 the Finansinspektionen (FI, the Swedish FSA) to reduce any such risks…