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Practical Monetary Policy: Examples from Sweden and the United States
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
2011 (English)In: Brookings papers on economic activity (Print), ISSN 0007-2303, E-ISSN 1533-4465, 289-352 p.Article in journal (Refereed) Published
Abstract [en]

In the summer of 2010, the Federal Reserve's and the Swedish Riksbank's inflation forecasts were below the former's mandate-consistent rate and the latter's target, respectively, and their unemployment forecasts were above sustainable rates. Conditions in both countries clearly called for policy easing. The Federal Reserve maintained a minimum policy rate, soon started to communicate possible future easing, and in the fall launched QE2. In contrast, the Riksbank started a period of rapid tightening. I find the arguments against the Federal Reserve's easing and the arguments for the Riksbank's tightening unconvincing. Although the Swedish economy subsequently performed better than expected, probably an important reason was that the market implemented much easier financial conditions than were consistent with the Riksbank's policy rate path. Without the policy tightening, performance would have been even better. The U.S. economy meanwhile performed worse than expected because of factors other than monetary policy. Without the policy easing, performance would have been even worse. In short, the Riksbank did the wrong thing but was lucky, whereas the Federal Reserve did the right thing but was unlucky.

Place, publisher, year, edition, pages
2011. 289-352 p.
National Category
Economics and Business
URN: urn:nbn:se:su:diva-79699ISI: 000303557200006OAI: diva2:552641


Available from: 2012-09-14 Created: 2012-09-11 Last updated: 2012-09-14Bibliographically approved

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