NorwegiaN moNetary policy seeN from abroad64
* TheauthorwouldliketothankGoranKatinicforallhelpwithcollectingandpresentingthedatainthisarticle,AndyFilardoforpermissiontousedatafromFilardoandHofmann(2014)inFigures8a–8d,andSveinGjedrem,EricLeeper,JesperLindé,ArentSkjaevelandandJanQvigstadforhelpfuldiscussions.Theopinionsexpressedinthisarticleare,however,thesoleresponsibilityoftheauthor.TheyshouldnotbeinterpretedasreflectingtheviewsofSverigesRiksbank.
NorwegianmonetarypolicyseenfromabroadAndersVredin*TheauthorisHeadoftheGeneralSecretariat,SverigesRiksbank
‘Who wants transparency when you can have magic? Who wants prose when you can have poetry?’ – Duke of Windsor, in the TV series ‘The Crown’.
1 IntroductionTheNordiccountriesinEuropehavemanythingsincommon,buthaveforvariousreasonschosendifferentstrategiesfortheirmonetarypolicies.FinlandisamemberoftheEuropeanUnion(EU)andtheeuroarea.DenmarkandSwedenaremembersoftheEU,butnotoftheeuroarea.Denmarkhas,however,chosentopegthevalueofitscurrencytotheeuro,whereasSwedenhasaflexibleexchangerateandinsteadfocusesonstabilizingthedomesticvalueofitscurrencythroughanexplicitinflationtarget.NorwayandIcelandalsohaveflexibleexchangeratesandinflationtargets,butunlikeSwedentheyarenotpartoftheEU.BeingoutsidetheEU,atleastformally,thesetwocountrieshavesomewhatlargerdegreesoffreedomwhenitcomestocentralbankgovernance.
ThispaperhasbeenwrittenonthesuggestionoftheMinistryofFinanceinNorwayandisbasedonapresentationmadeataconferenceonexperiencesofinflationtargetingorganizedinOsloon16January2017.ThetaskgivenwastocommentonmonetarypolicyinNorwayfromaSwedishperspective.Forobviousreasons,beingacentralbankofficial,IhavechosennottocommentonthecurrentimplementationofmonetarypolicyinNorwayandSweden.Instead,Iwilltakeamoregeneralandlongtermperspectiveandhighlightsomesimilaritiesanddifferencesbetweenthetwocountries’strategiesformonetarypolicy.
Insummary,thepresentationandthepapercontainthefollowingmainmessages.First,thefactsthattherehavehistoricallybeensmalldifferencesinnominalandrealinterestratesinNorwayandSweden,and,inparticular,thatthenominalexchangeratehasbeenverystable,suggestthattherehavebeensmalldifferencesinmonetarypoliciesbetweenNorwayandSweden.Second,thesimilaritiesinmonetarypoliciescanbeobserveddespitedifferencesininstitutionalframeworks,asreflectedforexampleincentralbanklaws.Takentogether,thesefirsttwoobservationsprobablyreflectthatbothNorwayandSwedenarehighlydependentonthedevelopmentintherestoftheworld.Third,monetarypolicyinNorwayandSwedenfacesimilarchallengesinthenearfuture.Theexperiencesduringthelastdecade,thatis,sincetheglobalfinancialcrisis,haveraisedquestionsabouttheinflationtargetingstrategy,forexampleasregardstheproperdefinitionoftheinflationtargetandthelinksbetweenmonetarypolicy,fiscalpolicyandfinancialstability.
2 Howdifferentaretheframeworksformonetary policyinNorwayandSweden?SomesimilaritiesanddifferencesbetweenNorwegianandSwedishframeworksaresummarizedinTable1.AnimportantsimilarityisthatSwedenandNorwaybothfollowthestrategycalled‘flexibleinflationtargeting’.Anexplicitinflationtargetwasannounced
65Penning- och valutaPolitik 2017:2
inSwedenin1993andinNorwayin2001,butthedetailsofthisstrategyhavedevelopedovertime.Forinstance,NorgesBankstartedtopublishforecastsfortheirowninterestratein2005andSverigesRiksbankstartedwiththisin2007.Bothcentralbanksareconsideredtobeamongthemosttransparentcentralbanksintheworld,althoughtherearesomedifferencesintheirpractices,andofcoursestillroomforfurtherimprovement.1
Table 1. Comparison of the frameworks for monetary policy in Norway and Sweden
Similarities Differences
Explicit,butflexible,inflationtargets EU
Transparency Thedegreeofindependence
Interestrateforecasts Governance
Small,efficientcentralbanks NBhasbroadermandate
SeparateFinancialSupervisoryAuthorities 2.5percentvs2percent
Fiscalrules Communicationaboutleaning
Smallopeneconomies Oil
SomeofthecommoncharacteristicsofNorgesBankandSverigesRiksbankmaynotseemdirectlyrelatedtothemonetarypolicystrategy,butcanarguablyaffectthecredibilityoftheinflationtargets.Bothcentralbanksarerelativelysmallbyinternationalstandards,andsincetheystillperformsimilartaskstoothercentralbanks,theyshouldthereforebeconsideredrelativelyefficient.Ahighdegreeoftransparencyandopennessisalsoconducivetoefficiency.Efficiency–andtransparency–inturnshouldpromotelegitimacyfortheinstitutionandtherebycredibilityforthetargetandstrategythecentralbankchoosestoformulate(ifthetargetandthestrategyareconsistent).
BothNorwayandSwedenhaveseparateFinancialSupervisoryAuthoritiesthatarenotpartofthecentralbank(unlikethesituationinsomeothercountries,forexampleFinlandandtheUK).Theadvantagesanddisadvantagesofsuchseparationaresubjecttoaninternationaldiscussionamongpolicymakersandresearchers.Thereareargumentssuggestingthatcoordinationwouldleadtobetteroutcomesforbothmonetarypolicyandsupervision,buttherearealsoargumentswhyseparationmaybebeneficial(see,forexample,Acharya,2015,andSchnabel,2016).
InbothNorwayandSweden,fiscalpolicyisrestrictedbysomeexplicitrules.InSweden,thereisasurplustargetfornetgovernmentlendingoverthebusinesscycle.InNorway,thereisinsteadalimitforthedeficit,morepreciselyalimitonhowmuchofthegovernmentpensionfund,basedonrevenuefromoilproduction,thatcanbeusedeachyear.Somemacroeconomistshaveemphasizedthatinflationtargetscanbecredibleonlyinsofarasthestrategiesformonetaryandfiscalpolicyfulfilcertainconsistencyrequirements(see,forexample,Leeper,2016,andSims,2016).
ThemostimportantsimilaritymaywellbethatbothNorwayandSwedenaresmallandtrade-dependenteconomiesthatareheavilyinfluencedbyeconomicdevelopmentsintherestoftheworld.Thisputssomelimitsonhowmonetarypolicycanbedesigned,andonwhatitcanachieve.Buttherearealsodifferencesinthisregard.AsamemberoftheEU,SwedenhasagreedtocomplywiththeprinciplesoftheMaastrichtTreaty.ThisisonereasonwhySverigesRiksbankhasahigherdegreeofindependencefromthepoliticalsystemthanNorgesBank.AccordingtoSwedishlaw,nopublicauthoritymaydeterminehowtheRiksbankshalldecideinmattersofmonetarypolicy,andtheRiksbank’sExecutiveBoardmay
1 AccordingtoDincerandEichengreen(2014),NorgesBank’s‘transparencyindex’is10.0andSverigesRiksbank’s14.5,whereastheaverageforcentralbanksinEuropeis8.4.Forsuggestionsastohowcommunicationcanbeimproved,seeforexampleNorgesBankWatch2016(Lommerudetal.,2016)andGoodfriendandKing(2016).
NorwegiaN moNetary policy seeN from abroad66
neitherseeknortakeinstructions.InNorway,incontrast,theGovernmenthastherighttogiveinstructionstoNorgesBank.2
Therearealsootherdifferencesintheinstitutionalframeworksforthetwocentralbanksthatmayhaveimplicationsforhowmonetarypolicyisconducted.Thereare,forexample,differencesregardingthecompositionofthecentralbanks’BoardsandtherolesoftheGovernor.TheRiksbankisgovernedbyanExecutiveBoardconsistingofsixfull-timeemployedmembers,theGovernorandfiveDeputyGovernors.NorgesBankhasanExecutiveBoardconsistingofthreeinternalmembers,theGovernorandtwoDeputyGovernors,andfiveexternalmembers.NorgesBank’sgovernancemodelresemblesthatoftheReserveBankofAustralia,whiletheSwedishmodelismoresimilartothoseinChile,BrazilandSwitzerland.
NorgesBankclearlyhasamuchbroadermandatethanSverigesRiksbank.ThesinglelargestdifferencebetweenthetwoinstitutionsisprobablythatNorgesBankmanagesthegovernmentpensionfundbasedonrevenuesfromoilproduction,especiallyconsideringthesizeofthefund(aroundthreetimesthesizeofNorway’sgrossdomesticproduct(GDP)).NorgesBankisalsorequestedbythegovernmenttogiverecommendationsregardingcommercialbanks’counter-cyclicalcapitalbuffers,incontrasttothesituationinSwedenwheretheFinancialSupervisoryAuthorityhasthisrole.AnotherexampleofdifferencesinmandatesisthattheNorgesBankActincludesageneralclausesayingthat‘TheBankmayimplementanymeasurescustomarilyorordinarilytakenbyacentralbank’.TheSverigesRiksbankAct,incontrast,saysthattheRiksbank‘mayonlyconduct,orparticipatein,suchactivitiesforwhichithasbeenauthorisedbySwedishlaw’.
Althoughcentralbanklegislationandpracticesdevelopovertimeandareaffectedbymanyandtime-varyingcircumstances,thefactsthatSverigesRiksbankhasbothahigherdegreeofindependenceandalsoamorenarrowmandateareprobablynotcoincidental.Politiciansandthegeneralpublicmaybemorewillingtogiveahigherdegreeofindependencetoacentralbank(andotherpublicauthorities)aslongasthemandateisnottoovagueorbroad.Forsomeargumentsalongtheselines–mainlypositive,notnormative–seeAcharya(2015)andArcher(2016).
TherearealsosomenoteworthydifferencesbetweenthedesignsoftheflexibleinflationtargetingregimesinNorwayandSweden.NorgesBankhasahigherinflationtarget(2.5percent)thantheRiksbank(2percent).NorgesBankhasalsobeenquiteexplicit,since2012,aboutthefactthatit,tosomedegree,is‘leaningagainstthewind’inmonetarypolicy.Thisexpressionisusedbymacroeconomiststodescribeamonetarypolicythatnotonlystrivestostabilizeinflationandeconomicactivitybutalsohastheambitiontodampenriskstofinancialstability.3InSweden,therehasbeenadiscussionaboutwhethertheRiksbankpractised‘leaning’during2010–2012and,ifso,whattheeffectsmighthavebeen.4 But at leastsince2014,theRiksbank’smonetarypolicyhasbeenfocusedonachievingtheinflationtarget,despitethefinancialinstabilityrisksidentifiedbytheRiksbankitselfand,forexample,theInternationalMonetaryFund(IMF).InTable1,thedifferencebetweenNorwayandSwedeninthisregardhasbeendeliberatelydescribedas‘communicationaboutleaning’;howmuchoftheeasilyidentifieddifferenceincommunicationthatisalsoreflectedinactualpolicyandoutcomesforforexampleinflationandeconomicactivityremainsanopenissue.
Finally,averyimportantdifferencebetweenNorwayandSwedenistheNorwegianoilproduction.Thisdifferencedoesnotonlymeanthatthecentralbanksfacedifferent
2 AccordingtoacertainindependenceindexpresentedbyDincerandEichengreen(2014),SverigesRiksbankisalmostasindependent(0.77)astheECB(0.81),andthesecentralbanksaremuchmoreindependentthanforexampleNorgesBank(0.47)andBankofEngland(0.23).Ofcourse,formaldifferencesinlegislationmayoverstatetheactualdifferencesinpolicyimplementation.MycolleaguesinNorwayhaveemphasizedthatthegovernment’srighttoinstructNorgesBankhasonlybeenusedtwicesince1985.First,whentheinflationtargetwasannouncedin2001,and,second,whenNorgesBankreceivedthetasktogiverecommendationsonthecounter-cyclicalcapitalbufferin2013.3 Woodford(2012)offersatheoreticalargumentforsuchastrategy.Theliteraturewithargumentsforandagainst‘leaningagainstthewind’istoolargetobedescribedhere,butrecentandshortsummarieshavebeenpresentedbyMester(2016)andSchnabel(2016).4 SeeJansson(2014)andGoodfriendandKing(2016).
67Penning- och valutaPolitik 2017:2
challengesregardinggovernance(becauseNorgesBankmanagesthegovernmentpensionfund)andthatmonetarypolicyhastoconsidertheeffectsofquitedifferentterms-of-tradeshocks–therevenuesfromoilproductionalsoimplyquitedifferentchallengesforfiscalpolicyandfinancialstability,challengeswhichmayalsohaverepercussionsonmonetarypolicy.
Intherestofthispaper,Iwillcomebacktothedifferencesregardingtheinflationtargetsandoil,andtothesimilarityofbeingsmallopeneconomies,butIdonothavemuchmoretosayabouttheothersimilaritiesanddifferenceslistedinTable1.
3 Long-termdevelopmentsofnominalandreal exchangerates3.1ExchangeratesandGDPGiventhatoneimportant,andperhapstheprimary,objectiveofmonetarypolicyistostabilizethevalueofdomesticmoney,anaturalwaytomeasuredifferencesinmonetarypoliciesshouldbetolookatchangesinnominalexchangeratesbetweendifferentcurrencies.5Thecountriesintheeuroareahavethesamecurrencyandthereforeacommonmonetarypolicy.ButDenmark’smonetarypolicycannotbeverydifferenteither,sinceDenmarkhaschosentopegthevalueofitscurrencytotheeuro.Fromthisperspective,itisveryinterestingtonotethatthevalueoftheNorwegiancurrency(NOK)intermsoftheSwedishcurrency(SEK)hasbeenverycloseto1mostofthetimeforthelasttwohundredyears–seeFigure1.Forexample,thecurrentexchangerateisveryclosetotheleveloftheexchangeratein1850.Between1875and1914,NorwayandSwedenwerepartoftheScandinavianCurrencyUnion,sotheexchangeratewasfixedatexactly1.Butevenduringothermonetarypolicyregimestheexchangeratehasnotdeviatedmuchfrom1–comparedwithhowmuchnominalexchangeratesbetweenothercountrieswithdifferentcentralbanksandmonetarypoliciesnormallyfluctuate.AscanbeseenfromFigure1,thevaluesofboththeNOKandtheSEKhavefluctuatedmuchmorevis-à-vissterling(GBP).WhiletheNOK/SEKexchangeratenowhasaboutthesamelevelasduringtheScandinavianCurrencyUnionandthegoldstandard,bothcurrencieshaveappreciatedaround40percentsincethenvis-à-vistheGBP.
0
1
2
3
4
0
10
20
30
40
1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
NOK per GBP (left scale) SEK per GBP (left scale)
NOK per SEK (right scale)
Sources: Bohlin (2010), Klovland (2004), Lobell (2010), Norges Bank and the Riksbank
Figure 1. Nominal exchange rates
5 Tosaythatstabilityofthevalueofdomesticmoneyisaprimaryobjectiveofmonetarypolicydoesnot,ofcourse,implythatthisshouldbethecentralbank’sonlyobjective.
NorwegiaN moNetary policy seeN from abroad68
Acommonviewofthedevelopmentofnominalexchangerates,atleastintheshortrunandaslongastheyarenotdeliberatelyfixedthroughacurrencyunionorsimilararrangement,isthattheyareunpredictable.Nominalexchangeratesareoftencharacterizedasrandomwalks.TheNOK/SEKexchangerateisclearlynotarandomwalk.Itisnotacoincidencethatthecurrentlevelisaboutthesameasin1850.ThestabilityoftheNOK/SEKexchangeratereflectsthatmonetarypoliciesinNorwayandSwedenhavebeenverysimilarandthatdifferencesinstructureandshockshittingthetwoeconomieshaveevenedoutoverthislongerperiod.6
Ifwetakeasomewhatshorterperspectiveandfocusonthedevelopmentduringthelastfiftyyears,thingslookabitdifferent.BoththeNOKandtheSEKappreciatedstronglyagainsttheGBPafterthebreak-downoftheBrettonWoodssystemofpeggedexchangerates.Butsincethemid-1970s,therehasbeennocleartrendintheNOK/GBPrate(althoughithasbeenquitevolatile),whiletheSEKhasexperiencedadepreciatingtrendvis-à-vistheGBP.ThisofcoursealsomeansthattheNOKhasappreciatedvis-à-vistheSEK,byaround1/3,sincetheearly1970s.Thistrendhowevercametoahaltabouttwentyyearsago.Duringthelasttwodecades,theNOK/SEKrateagainhasbeenquitestable.
Changesinnominalexchangeratesdonotnecessarilyreflectchangesintherealvalue,thatisthepurchasingpower,ofthecurrenciesinquestion.Itisacommonlyheldviewthatchangesinnominalexchangeratesatleastpartlyreflectdifferencesininflation(thatischangesinthedomesticpurchasingpower)betweenthecountriesinquestion.If‘purchasingpowerparity’holds,nominalexchangeratesadjustexactlyone-for-onewithchangesinthedomesticpricelevelsothattherealexchangerateisconstant.TherealexchangerateisheredefinedasQ = EP*/P,whereEisthenominalexchangerate(forexample,NOK/SEK,sothathigherEmeansaweakerNOK),Pisthepricelevelathome(forexampleNorway)andP* the pricelevelabroad(forexampleSweden).
Figure2ashowsthelong-runpricelevelsinNorway,SwedenandtheUK,andFigure2bshowsthecorrespondinginflationrates(percentagechangesofthepricelevels).ItcanbeseenthatinflationintheUKhasbeenhigherthaninflationinNorwayandSwedensincetheearly1970s,soagainstthisbackgroundthedepreciationinthenominalvalueoftheGBPvis-à-vistheNOKandtheSEKisunderstandable.Butapparentlydifferencesininflationdonottellthewholestorybehindchangesinnominalexchangerates.TheSEKhasdepreciatedvis-à-visboththeNOKandtheGBPduringthelasttwodecades,despitethefactthatinflationhasbeenlowerinSwedenthaninNorwayandtheUK.
6 Itshouldbenotedthathavingsimilarinflationtargetsdoesnotimplyastablelevelofthenominalexchangerate.Withaninflationtargetthedeviationsfromthetargetareaccumulatedinthepricelevelovertime,sothepricelevelbecomesanon-stationaryprocess.Thiswillbereflectedinthenominalexchangeratebetweentwoinflation-targetingcountriesalsobeingnon-stationary.
69Penning- och valutaPolitik 2017:2
-30
-20
-10
0
10
20
30
40
50
1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
Figure 2. Price levels and inflation rates(a) Price levels (b) Inflation rates
Sweden Norway United Kingdom
Note. The natural logarithm of index, 1875 = 100 and annual percentage change.Sources: Edvinsson and Söderberg (2010), Grytten (2004a), Klovland (2013), Office for National Statistics, Norges Bank and the Riksbank
1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
-30
-20
-10
0
10
20
30
40
50
1819 1839 1859 1879 1899 1919 1939 1959 1979 1999
Figure 2. Price levels and inflation rates(a) Price levels (b) Inflation rates
Sweden Norway United Kingdom
Note. The natural logarithm of index, 1875 = 100 and annual percentage change.Sources: Edvinsson and Söderberg (2010), Grytten (2004a), Klovland (2013), Office for National Statistics, Norges Bank and the Riksbank
1819 1839 1859 1879 1899 1919 1939 1959 1979 1999
3
4
5
6
7
8
9
10
3
4
5
6
7
8
9
10
SEK per GBP NOK per GBP NOK per SEK
Note. Nominal exchange rates and price level indicies are indexed, 1875 = 100.Sources: As in Figures 1 and 2
Figure 3. Real exchange rates
1820 1840 1860 1880 1900 1920 1940 1960 1980 20000
50
100
150
200
250
Deviationsfrompurchasingpowerparity,or,equivalently,levelsofrealexchangerates,areshowninFigure3.7Itcanbeseenthatthepurchasingpower,therealvalue,oftheGBPwasquitehighintheearly1800s;thattherealvalueoftheSEKwasquitehighaftertheSecondWorldWar;andthattherealvalueoftheNOKhasappreciatedversustheSEKsincethemid-1960s.Inbroadterms,thesepatternsshouldnotbesurprising.Thepricesofgoodsandservicesshouldtypicallyberelativelyhighinrichcountrieswhereconsumershavehighincomestospend.IndustrializationoccurredearlierintheUKthaninNorwayandSweden,whichisonereasonwhyincome,spendingandpriceswererelativelyhighintheUKinthe1800s.SwedenwasnotdirectlyinvolvedintheSecondWorldWarandcouldthereforemaintainarelativelyhighlevelofproductionandspendinginthe1950sand1960s.OildiscoveriesinNorwayhavemaderelativelyhighproductionandspendingpossibleduringthelastfortyyears.8
7 TherealexchangeratesinFigure3(Q)arejusttheproductsofthenominalexchangeratesinFigure1(E)andtheratiosofthepricelevels(P/P*)inFigure2a.IncontrasttoFigure1,wherethenumbersontheverticalaxisreflectactualpricesusedoncurrencymarkets,thenumbersontheverticalaxisinFigure3havenoeconomicinterpretation,becausethepricelevels(inFigure2a)arejustindicesofconsumerpricesmeasuredindifferentwaysindifferentcountries.8 Theuseoftheword‘relatively’isdeliberatelysomewhatsloppyhere,inordertosimplifythepresentation.Sometimesitrelatestoahistoricalperspective,sometimestoacomparisonacrosscountries,orboth.
NorwegiaN moNetary policy seeN from abroad70
ThedevelopmentofGDPpercapitainNorway,SwedenandtheUKisshowninFigure4.RealGDPpercapitaisnowaround35percenthigherinNorwaythaninSweden.9IfweexcludeoilproductionandcomparetheGDPlevelinjustmainlandNorwaywithGDPinSweden,realGDPpercapitainNorwayisaround12percenthigher.Betweenthefirstandsecondworldwars,realGDPpercapitawasataboutthesamelevelsinNorway,SwedenandtheUK.AftertheSecondWorldWar,productionandincomegrewfasterinNorwayandSweden,butthelevelsinthesecountrieshavegrownapartsincearound1970.
Norway Mainland Norway Sweden United Kingdom
Note. Index series, Norway 1968 = 100, levels of Sweden and UK adjusted to match Purchasing Power Parity-adjusted GDP (according to the Organisation for Economic Cooperation and Development (OECD)) 2010.Sources: Edvinsson (2014), Grytten (2004b), Thomas and Dimsdale (2016), Bank of England, IMF, Norges Bank, Macrobond, Statistics Norway and the Riksbank
Figure 4. Real GDP per capita
0
50
100
150
200
250
300
350
1830 1850 1870 1890 1910 1930 1950 1970 1990 2010
UsingdatathathavebeenusedinFigures3and4,itispossibletoestablishasystematicrelationbetweenrealexchangerates(Q = EP*/P)andrelativeGDPlevels(Y/Y*)–seeFigures5aand5b.10WhenGDPinNorwayhasbeenrelativelyhighinrelationtoSwedenandtheUK(Y/Y* high),Norway’srealexchangeratehasbeenrelativelystrong,or,equivalently,thepricesofgoodsandservicesinNorway,measuredincommoncurrency,high(thatis, Q = EP*/P low).11ThecorrelationbetweenrealexchangeratesandrelativeGDPlevelsisnotperfect,ofcourse.TherearemanydifferentfactorsthatinfluencethedevelopmentsofbothrealexchangeratesandGDP.Yet,therelationbetweenrelativespendingandrelativepricelevels–measuredincommoncurrency–hasimplicationsformonetarypolicy.Iwillreturntothisissuebelow,afterashortdigressionontheroleofthecurrentaccount.
3.2ThedevelopmentofthecurrentaccountinNorwayandSwedenOnevariablethatiscommonlyusedinanalysesof‘competitiveness’and‘equilibrium’or‘sustainable’realexchangeratesisthelevelofthecurrentaccount.Sometimesapersistentcurrentaccountsurplusisinterpretedasasignofan‘undervalued’currency(ofteninbothrealandnominalterms).SincebothSwedenandNorwayhavehadpersistentsurplusesinourcurrentaccountsduringthelasttwentyyears,whiletheUKhasexperiencedpersistent
9 TheGDPpercapitalevelsinFigure4arebasedonrealGDP(andpopulation)datafromeachcountry,whichmeansthattheyarealsobasedontheuseofdifferentpriceindices(tocomputerealGDP).ThismakesitdifficulttocomparerealGDPlevelsindifferentcountries.ThedatainFigure4havehoweverbeenscaledtomatchdifferencesinpurchasingpower-adjustedrealGDPpercapitaby2010,accordingtoestimatesofsuchdifferencesfromtheOECD.TheverticalaxisinFigure4(or,rather,therelationbetweenthelevelsofseries)canthusbegivenaneconomicinterpretation.10 ThedatainFigure4areGDPpercapita,whilethedataonYandY*inFigures5a–barebasedonlyonGDPserieswithoutanyadjustmentsforpopulationsize.11 TherelationbetweentherealexchangerateandtherelativeGDPlevelinSwedenandtheUK(notshown)ismarginallyweakerthanthecorrespondingrelationbetweenNorwayandtheUK.
71Penning- och valutaPolitik 2017:2
deficits(duringthelastthirtyyears)–seeFigure6a–onemaywonderwhytheSEKhasdepreciatedvis-à-vistheGBPinrealterms,whiletherealNOK/GBPratehasbeenrelativelystable.
70
90
110
130
150
0.4 0.5 0.6 0.7 0.8 0.9
Real
exc
hang
e ra
te
Real
exc
hang
e ra
teRelative real GDP Relative real GDP
60
100
140
180
0.2 0.6 1.0 1.4 1.8
Figure 5. Real exchange rate and relative GDP in Norway 1830–2015(a) Norway and Sweden
(EP*/P)=156.4 – 82.1(Y/Y*); Correlation coefficient = −0.45(b) Norway and the UK
(EP*/P)=121.6 – 16(Y/Y*); Correlation coefficient = −0.43
Sources: See Figures 1, 2 and 4, where Norway's GDP includes oil income
ThisbecomeslesspuzzlingonceoneconsidersthedifferentfactorsbehindthecurrentaccountsurplusesinNorwayandSweden.Norway’scurrentaccountsurplusesaremainlydrivenbyproductionandexportsofoil.OilrevenueenablesacurrentaccountsurplusandacapitaloutflowfromNorwaytotherestoftheworld.Atthesametime,thisenablesacurrentaccountdeficitformainlandNorway,thatisacapitalinflownotfromtherestoftheworldbutfromtheNorwegianoilfields.ThispermitsspendingtobehigherthanincomeinmainlandNorwayandputsupwardpressureonpricesinNorwayvis-à-vistherestoftheworld,whichtendstoappreciatetherealexchangerate.
InSweden,bycontrast,thecurrentaccountsurplusratherreflectsarelativelylowlevelofspending(inrelationtoincome),bothintheprivateandthepublicsector.Theeconomiccrisisintheearly1990sledtolargechangesineconomicpolicyandhouseholds’behaviourinSweden.HouseholdsavingsasashareofdisposableincomeareshowninFigure6b.Asmentionedabove,fiscalpolicyhasalsoaimedforpositivenetsavingsinthepublicsector.Hence,incontrasttomainlandNorway,Swedenhasthusgeneratedacurrentaccountsurplusthroughlowspending.Thisisonereasonwhypricesofgoodsandserviceshavebeen
-10
-5
0
5
10
15
20
80 85 90 95 00 05 10 15-5
0
5
10
15
20
95 98 01 04 07 10 13
Sweden Norway United Kingdom
Note. Per cent of GDP and percentage of households net disposable income. Net household saving is defined as the
households in pension funds. Norway’s GDP includes oil income.Sources: IMF and OECD
Figure 6. Current account and household savings (a) Current account as a share of GDP (b) Household savings as a share of disposable income
subtraction of household consumption expenditure from household disposable income, plus the change in net equity of
NorwegiaN moNetary policy seeN from abroad72
relativelylow(thatisadepreciatedrealexchange)comparedtobothNorwayandtheUK.Insummary:therealappreciationoftheNOKvis-à-vistheSEKduringthelastfortyyears
reflectsthefactthatincomeandspendinghasgrownfasterinNorwaythaninSweden,puttingstrongerupwardpressureonpricesinNorway.Themainreasonforthehigherincomeandspendingistherevenuefromoilproduction,whichalsoexplainswhyNorwayhasexperiencedacurrentaccountsurplusdespitearelativelystrongrealexchangerate.InSweden,bothprivateandpublicsavingshavebeenhigh,andspendingrelativelylow.Thishasresultedinaweakrealexchangerateandacurrentaccountsurplus.
3.3Lessonsforpolicy,partIStructuralfactorshavegeneratedarealappreciationoftheNOKvis-à-vistheSEKsincethebreak-downoftheBrettonWoodssystem.TheNOK/SEKratehasappreciatedbyaround1/3,inbothinrealandnominalterms.Incontrast,theSEKwasstronginrealtermsduringthefirsttwentyyearsaftertheSecondWorldWar.
Monetarypolicycannotdomuchabouttheneedforlong-termadjustmentsinrealexchangerates(Q).Evenso,monetarypolicydetermineshowmuchofthechangesinrealexchangeratesthatoccurthroughchangesinthenominalexchangerate(E)orthroughchangesinrelativepricelevels(P/P*).Interestingly,andsomewhatparadoxically,therealappreciationoftheNOK/SEKrateduringthefirsttwentyyearsafterthebreak-downoftheBrettonWoodssystem,whenbothSwedenandNorwayhadtheambitiontostabilizethenominalvaluesoftheircurrencies,tooktheformofanominalappreciationoftheNOK.(InflationwashigherinSwedenthaninNorway,sothenominalNOK/SEKratehadtoappreciateevenmorefortherealexchangeratetoappreciate.)Duringtherecenttwentyyears,whenbothcountrieshavehadtheambitiontostabilizeinflationandlettheircurrenciesfloat,thenominalNOK/SEKratehasactuallybeenquitestableandtherealNOK/SEKappreciationhasinsteadoccurredthroughdifferencesininflation(higherinflationinNorway).
ThismeansthatthepatternofrelativepriceadjustmentsbetweenNorwayandSwedenduringthelasttwentyyearslargelyresemblethosethatwouldhavetotakeplaceinacurrencyunion.Acommonviewisthatadisadvantageofacurrencyunionisthatchangesinrealexchangeratescannottakeplacethroughnominalexchangerateadjustmentsbutinsteadhavetooccurthroughchangesinnominalprices.Thelatterareassumedtobemorepainful.ButthenecessaryadjustmentoftherealexchangeratebetweenNorwayandSwedenduringthelasttwentyyearshasapparentlybeenpossiblewithoutanysignificantchangeinthenominalexchangerate.This,inturn,impliesthatdifferencesinmonetarypolicybetweenNorwayandSwedenmaynothavebeenveryimportant.
NorgesBankWatch2016(Lommerudetal.,2016)hasraisedthequestionwhetherNorgesBank’sinflationtargetof2.5percentshouldbeloweredtothesamelevelasinNorway’s‘neighbours’.ThisisaquestionofhowimportantitisforNorwaytohaveastablenominalexchangerate.WithlowerinflationinNorway(orhigherinflationinNorway’stradingpartners)therealexchangerateadjustmentthathasbeennecessarywouldhaverequiredalargerchangeofthenominalvalueoftheNOK.Fromthisperspective,thedifferencebetweenNorway’sandSweden’sinflationtargets–2.5percentvs2percent–isunderstandable.HigherinflationinNorwaythaninSwedenallowsmorestabilityinthenominalNOK/SEKexchangerate.Lookingforward,itisquitepossiblethatbothNorway’sandSweden’srealexchangerateswillhavetoappreciate–giventhecurrentaccountsurplusesinthesecountries.Ifso,stabilityoftheNOK/SEKexchangeratecouldbeconsistentwithmoresimilarinflationtargets.
73Penning- och valutaPolitik 2017:2
4 Long-termdevelopmentsofnominalandreal interestratesSofar,thediscussionhasbeenmostlycastintermsofatwo-countryworld(NorwayandSweden)withoccasionalreferencestothedevelopmentinthe‘restoftheworld’(representedbytheUK).Butitisofcoursemisleadingtoanalysetheeconomicdevelopment–andmonetarypolicy–inanysmallopeneconomyasbeinginfluencedbythedevelopmentinonlyoneforeigncountry(ortwocountries).ThecurrentlowlevelsofnominalinterestratesinNorwayandSwedenarenotprimarilytheresultsofmonetarypoliciesinthesetwocountries,butreflectionsofalong-term,global,downwardtrendininterestrates–seeFigures7aand7b.
Thedownwardtrendinnominalinterestrateshasapparentlybeenmorepersistentthancentralbankshaveexpected.Figures8a–8dshowthedevelopmentsofthepolicyratesinSweden,Norway,theCzechRepublicandNewZealandtogetherwiththeforecastsofthepolicyratespublishedbytheunusuallytransparentcentralbanksinthesecountries.
0
2
4
6
8
10
12
14
16
87 91 95 99 03 07 11 15-4
0
4
8
12
16
20
24
80 85 90 95 00 05 10 15
Sweden Norway USA United Kingdom
Note. Per cent. For Norway the discount rate is used 1980–1986/02, the D-loan rate 1986/03–1993/05, and Sight deposit afterwards. For Sweden the discount rate is used 1980–1986, the marginal rate 1987–1994/05 and the repo rate afterwards.Sources: Bank of England, Federal Reserve, Norges Bank and the Riksbank
Government bond yields and central banks' policy rates
Figure 7. Government bond yields and central banks' policy rates (a) 10-year yield on nominal government bonds (b) Central banks’ policy rates
4.1Whyhavecentralbanksmadesystematicforecasterrors?DataliketheonesdescribedinFigures8a–8dofcoursegiverisetocriticismofcentralbanks.Howcomethecentralbanksmakesuchbadforecastsevenforthepolicyratesthattheysetthemselves?
OnepossibilityisofcoursethatthedatainFigures8a–8darenotrepresentativeofcentralbanksingeneral,andthatthecentralbanksthatareunusuallytransparenthavealsobeenunusuallybadforecasters.Itis,however,hardtobelievethatcentralbankswhohavebeenunwillingtopublishinterest-rateforecastshavesystematicallymadebetterforecasts.Unfortunately,suchhypothesescannotbetested.
Anotherpossibilityisthatthecentralbanksinquestion–andperhapsallcentralbanks–relytooheavilyonobsoletemodels.Thishasbeenacommoncritiqueagainstcentralbanksduringthelastdecade.GoodfriendandKing(2016)have,forinstance,criticizedtheRiksbank’suseofmodels.Thatparticularcritiquedoesnotseemtobejustified.Iversenetal.(2016),usingrealtimedata,showthatforecastsfromtheRiksbank’smodelsarenotsystematicallyworsethantheforecaststhathavebeenpublished,andthatareinfluencedbybothmodelsandjudgements.LindéandReslow(2017)alsoshowthattheRiksbank’sforecasterrorshavenotbeenmainlydrivenbytheuseofdeficientmodels.Ontheotherhand,itisclearthattherearemanyweaknessesinthedominatingmacromodelsmoregenerally–seeforexampleFaustandLeeper(2015)andLindé,SmetsandWouters(2016).
NorwegiaN moNetary policy seeN from abroad74
Figures8a–8dshouldleadustosearchforexplanationsbehindtheforecasterrorsnotinpeculiarmodelsorotherconditionsinindividualcountries,butforsomefactorsthatarecommontosmallopeneconomies–andperhapsalsolargereconomies–withintheentireworldeconomy.Figures7aand7bshowthatbothshort-termandlong-terminterestratesintheworldeconomyhavenotonlygonedownbutalsoconverged.Oneexplanationforthisisthatdifferencesinmonetarypolicieshavebecomesmaller.Mostcountrieshavehadtheambitiontostabilizeinflationatalowlevel,irrespectiveofwhethertheircentralbankshaveexplicitinflationtargets.Thedownwardtrendinnominalinterestratespartlyreflectsadownwardtrendininflation,andtheconvergencepartlyreflectssimilaritiesinexplicitorimplicitinflationtargets.
Butinterestrateshavebeentrendingdownwardsevenwhenthedevelopmentofinflationistakenintoaccount–seethedevelopmentofrealinterestratesinFigure9.12 There alsoseemstohavebeenaconvergenceinrealinterestrates,althoughthisislessobvious.Theworldeconomyhasnodoubtbecomemoreopen,bothfinanciallyandthroughtradeofgoodsandservices.TradehasincreasedfasterthanGDPandlabourandcapitalmobilityhasalsoincreased.Thisshouldindeedbeexpectedtoleadtoaconvergenceofrealinterestrates.
Theglobaldownwardtrendinrealinterestrateshasreceivedincreasedattentionfromresearchersandpolicymakers,seeforexampleRachelandSmith(2015)andFischer(2016)fortworecentsummaries.Demographicchanges,fiscalpolicies,higherinequalityandhigheruncertaintyarefactorsthathaveallcontributedtopersistentlylowerrealinterestrates.Therealsoseemstohavebeenaslowdownintheratesoftechnicalprogressandproductivitygrowth.Thesefactorsarepartlyrelatedandoftencommonacrosscountries.Throughtradeingoodsandservicesandmobilityofproductionfactorstheyarealsotransmittedacrosscountries.
Itis,ofcourse,fairtoaskwhythedownwardglobaltrendinrealinterestrateshascomeasasurprisetocentralbanks.ButthefactthatAlanGreenspantalkedabouta‘conundrum’backin2005(thatisbeforethefinancialcrisis;seeGreenspan,2005)togetherwiththefactthatthenormalleveloftherealinterestrateisstillbeingdebated(seeRachelandSmith,2015,andFischer,2016)suggeststhatcentralbanks,ingeneral,havebeengenuinelysurprisedbythelowlevelofrealinterestrates,andthereforeofnominalpolicyrates,notonlyintheirhomecountriesbutglobally.
12 Thereisnoobviousandsimplewaytocalculateandcomparerealinterestratesindifferentcountries.ThedatainFigure9arebasedonobservedinterestandinflationrates.Ideallyonewouldliketocomputerealinterestratesusingexpectationsofinflationratherthanoutcomes.
75Penning- och valutaPolitik 2017:2
-1
0
1
2
3
4
5
06 08 10 12 14 16 18 06 08 10 12 14 16 180
1
2
3
4
5
6
0
1
2
3
4
5
06 08 10 12 142
3
4
5
6
7
8
9
06 08 10 12 14 16
Figure 8. Central banks’ policy rates together with their forecasts
(c) Czech Republic (d) New Zealand
(a) Sweden (b) Norway
Key policy rate
Source: Filardo and Hofmann (2014), Bank for International Settlements (BIS)
4.2Lessonsforpolicy,partIIWhencomparingpolicyratesandotherinterestratesinNorwayandSweden,itisnotthedifferencesthatarestriking,butthesimilarities.Andnotonlythesimilaritiesbetweenthesetwocountries,butalsothestrongcorrelationswithinterestratesintherestoftheworld.ThecurrentlylowlevelsofthepolicyratesinNorwayandSwedenarereflectionsofgloballylowinterestrates.Itisnotsurprisingthatthelongruntrendsinnominalandrealinterestratesarestronglyrelatedacrosscountries.Thecommontrendinrealinterestratesreflectsahighdegreeofintegrationoftheworldeconomy.Thecommontrendinnominalinterestratesinadditionreflectsahighdegreeofsimilarityininflationtargetsandmonetarypolicystrategies.
Takentogether,these‘stylizedfacts’seemtosuggestthatdifferencesinmonetarypoliciesbetweencountries,includingNorwayandSweden,havebecomelessimportantovertime.Onereasonisthatthedifferencesinmonetarypolicyitselfhavebecomesmaller.Theapplicationofsomeversionof(explicitorimplicit)inflationtargetinghasincreasedovertime.Anotherreasonisthattheworldeconomyhasbecomemoreintegrated.Thisleadstosmallerdifferencesinrealinterestratesandpossiblylessscopeformonetarypolicytoaffecttheeconomiccyclesindifferentcountries.Asallreaderscanobserve,theseconclusionsarenotbasedonverydeeptheoreticalorempiricalstudiesbutratherspeculative.Morecarefulstudiesareneeded.
NorwegiaN moNetary policy seeN from abroad76
Sweden Norway USA United Kingdom
Note. Difference between 10-year yield on nominal government bonds and the CPI for all countries.Sources: Bureau of Labor Statistics, Macrobond, Office for National Statistics, Statistics Norway and Statistics Sweden
Figure 9. Real interest ratesPer cent
-4
-2
0
2
4
6
8
10
89 93 97 01 05 09 13
5 ChallengesformonetarypolicyinbothNorway andSwedenIntheprevioussectionsIhavearguedthattherearemanysimilaritiesbetweenthemonetarypoliciesinNorwayandSweden.Differencesinthedegreeofcentralbankindependence,governancemodels,levelsofinflationtargets,etceteradonotseemtohaveledtolargedifferencesininterestratesorexchangerates.Onereasonforthismaybethatbotheconomiesaresmallandopenandhighlyintegrated.Oneimportantdifference,though,isthatNorway’sproductionofoilhasledtoanincreasingdifferencebetweenthelevelsofincomeinthetwocountries.Capitalmobilitymayimplythatdifferentincomelevelsareconsistentwithsmalldifferencesinrealinterestrates,butadjustmentsinrealexchangeratesareneededintheshorttermsincepartsoftheconsumptionbasketsconsistofnon-tradedgoods.
Againstthisbackground,NorwayandSwedenfacesimilarchallengesfortheirstrategiesformonetarypolicy–despitethehigherincomeduetooilproductioninNorway.
Onesetofstrategicquestionsthathasreceivedincreasedattentioninrecentyearsconcernsthedefinitionoftheinflationtarget.TheBankofCanadahaveintheirlasttworeviewsoftheirinflation-targetingstrategyaskedwhethertheinflationtargetshouldbeloweredorraised.NorgesBankandSverigesRiksbankhavereasontoconsiderthesamequestions.Thesequestionscannot,ofcourse,beansweredindependentlyofthedefinitionoftheinflationtarget.Thereisanon-goingdiscussioninbothNorwayandSwedenoftheimplicationsofdifferentdefinitionsoftheinflationtargets;forexampleaboutwhetherthetargetsshouldbeexpressedintermsofheadlineCPIorsomemeasureof‘core’inflation(seeGoodfriendandKing,2016,Lommerudetal.,2016,andSverigesRiksbank,2016).13InSwedenthereisalsoadiscussionaboutwhethertheinflationtargetshouldbecombinedwithsomeintervalindicatingthecentralbank’stolerancefordeviationsorthegeneraluncertaintyininflationforecastsetcetera(seeSverigesRiksbank,2016).
Anotherquestionconcerns,aswehaveseen,estimatesofthepolicyrateinasteadystate,thatiswhentheeffectsoftemporarydisturbanceshavedisappeared.Ifonereasonforthecentralbanks’forecasterrors,showninFigures8a–8disthatthesteadystatelevelofthepolicyratehasbeenoverestimated,theresulthasprobablybeenthatthepolicyrate
13 Afterthispaperwaswritten,SverigesRiksbankreformulateditsinflationtargetintermsofCPIFinsteadofCPI,whichwasannouncedon6September2017.
77Penning- och valutaPolitik 2017:2
hasbeenhigherthandesirable.Findingbetterwaystoestimatethe(possiblytime-varying)steadystatelevelisthusimportantforaproperimplementationofmonetarypolicy.
Riskstofinancialstabilityinvolvefurtherchallenges.First,theriskshavetobeidentified.Second,theimplicationsformonetarypolicyhavetobedecided.Therearenosimpleanswerstothesequestions.Asshownabove,bothNorwayandSwedenhavehadpersistentcurrentaccountsurplusesduringrecentdecades.Thismeansthatthecountries’netindebtednessvis-à-vistherestoftheworldisnotincreasingbutratherdecreasing.Theprivatesectors’grossdebthasneverthelessbeenincreasing.Andhighlevelsofgrossdebtandrapidincreasesinresidentialprices,asinNorwayandSweden,areknowntobeleadingindicatorsoftherisksoffinancialcrises.
Thehighlevelsofgrossprivatedebtmaybepartlyexplainedbythehighlevelsofcollectivesavings–accumulatedinthegovernmentpensionfundbasedonoilrevenuesinNorwayandinthepensionfundsbasedonagreementsbetweenemployersandunionsinSweden(seeNilssonetal.,2014,foradiscussionoftheSwedishcase).ThesepensionfundscontributepositivelytofinancialstabilityinNorwayandSwedenbyprovidingbuffersagainstunfavourabledevelopmentsofforexampledemographicsorproductivity.Butthehighdegreeofcollectivesavingsalso,byconstruction,meansthattheprivatesectorismoreliquidityconstrainedcomparedtoasituationwithalargershareofindividualsavings.Theneteffectonfinancialstabilityrisks,andtheimplicationsforcentralbankpolicy,shouldbesubjecttomorecarefulanalyses.
Evenifhighlevelsofprivatedebtandrapidincreasesinresidentialpricesareassociatedwithriskstofinancialstability,itisnotobviousthatthisshouldbethecentralbank’sresponsibility,andevenifthecentralbankhasaresponsibilityinthisfield,itisnotobviousthatitshouldhaveanyimplicationsformonetarypolicy(seeforexampleMester,2016,andSchnabel,2016forrecentreviews).Newmeasuresintheareaofmacro-prudentialpolicyareoftensaidtobethe‘firstlineofdefence’againstfinancialinstabilityrisks.Butevenso,somecoordinationofmonetaryandmacro-prudentialpolicymaybebeneficial.Coordinationisofcoursesimplerifthesetoolsarehandledbythesameauthority,asinthecaseoftheUKandtheBankofEngland.InNorwayandSwedenandothercountrieswheretheFinancialSupervisoryAuthoritiesarenotpartofthecentralbank,otherformsofcoordinationhavetobefound.InNorway,thecentralbankhasbeengiventhetasktogiverecommendationsonthecounter-cyclicalcapitalbuffer.ThishasledtoregularpublicationsofassessmentsoffinancialstabilityinNorgesBank’sreportsonmonetarypolicy.SverigesRiksbankhasnoformalresponsibilityformacro-ormicro-prudentialpolicybutstillpublishesFinancialStabilityReportswithanalysesandrecommendations.ThereisaFinancialStabilityCouncilwhererepresentativesoftheGovernment,theSwedishFinancialSupervisoryAuthority,theSwedishNationalDebtOfficeandSverigesRiksbankregularlymeettodiscussissuesoffinancialstability.InbothNorwayandSweden,theinteractionsbetweenthegovernment,thecentralbankandtheFinancialSupervisoryAuthoritywillpresumablybefurtherdevelopedinthenearfuture.
Regardingthecoordinationor‘policymix’ofmonetaryandfiscalpolicy,bothNorwayandSwedenhavemadereformsduringthelast15–25yearsthathavebeenfocusedoncreatingclearrulesforthedifferentpoliciesseparately,withnoambitionsofcoordination.Monetarypolicyhasbeenreformedtoestablishcredibilityfortheinflationtargetsandfiscalpolicyhasbeenreformedtoensureasustainablelongtermdevelopmentofgovernmentdebt.Leeper(2016)andSims(2016),amongothers,havestressedtheimportanceofformulatingconsistentrulesformonetaryandfiscalpolicy.TheirargumentssuggestthatfiscalpoliciesinEuropeandelsewheremayhavebeentoomuchfocusedon‘austerity’inrecentyearsandthatthismaybepartoftheexplanationforpersistentlylowinflation.TheimplicationsoftheseanalysesandargumentsformonetaryandfiscalpolicyinNorwayandSwedenremainopenissues.ButeconomistsatNorgesBankandSverigesRiksbankshouldbeabletomakeconstructivecontributionstoadiscussionofsuchissues.
NorwegiaN moNetary policy seeN from abroad78
Anambitiontopreserveacertainlevelofcentralbankindependencemayposerestrictionsonthecoordinationofmonetarypolicywithmacro-prudentialpolicyorfiscalpolicy.ThefuturedegreeanddesignofcentralbankindependenceinNorwayandSwedenwillbethoroughlydiscussedinthenearfuture,asthecentralbanklawsinbothcountriesarebeingreviewed.Butevenwithahighdegreeofindependencefromthepoliticalsystem,thepossibilitiesforbothNorgesBankandSverigesRiksbanktopursueveryindependentmonetarypoliciesarelimitedbytheopennessofthesesmalleconomies.TheimplicationsofforexamplecapitalmobilityfortheeffectivenessofmonetarypolicyinNorwayandSwedendeservefurthertheoreticalandempiricalstudies.
Finally,bothNorgesBankandSverigesRiksbankneedtoevaluatetheirexperiencesfrombeingamongthemosttransparentcentralbanksintheworld.Publicationsofinterest-rateforecasts(inbothcountries)andofdetailedminutesfromtheBoard’sdiscussionsaboutmonetarypolicy(SverigesRiksbankbeingmoredetailedthanNorgesBankinthisregard)shouldhavehadpositiveeffectsonthecentralbanks’legitimacy,throughimprovedaccountabilityandefficiency.Butthehighlevelofprecisioninthecommunicationmayalsohavecontributedtoanoverlyoptimisticview–perhapsmoreoutsidethaninsidethecentralbank–ofwhatthe‘scienceofmonetarypolicy’canachieve;seeGoodfriendandKing’s(2016)reviewofthecaseofSwedenforsomecriticalcomments.ThemessageintheintroductoryquotationfromtheTVseries‘TheCrown’suggeststhatpeopleoftenwanttobe‘fooled’,perhapsbecauserealismisnotalwayspleasant,andperhapsthisistruealsoofmonetarypolicy.DocumentingandanalysingforecasterrorssuchasthoseshowninFigures8a–8disnotalwayspleasant.Still,beingastransparentaspossibleaboutwhatpolicy,andforecastingmodels,canandcannotachieveisagoodstartingpointforimprovingpolicymakingandanalyses.Howtocombinetransparencywithrigorousanalyseswhilestillemphasizingthatbothpolicyandanalysesareassociatedwithconsiderableuncertaintyremainsanimportantchallenge.
79Penning- och valutaPolitik 2017:2
ReferencesAcharya,Viral(2015),‘Financialstabilityinthebroadermandateforcentralbanks:apoliticaleconomyperspective’,WorkingPaperNo.11,HutchinsCenter.
Archer,DavidJ.(2016),‘Acomingcrisisoflegitimacy?’,inRethinkingthecentralbank’smandate,Sveriges Riksbank Economic Review,No.3,specialissue,pp.86–95.
Bohlin,Jan(2010),‘Fromappreciationtodepreciation:theexchangerateoftheSwedishKrona, 1913–2008’,Ch.7inHistorical Monetary and Financial Statistics for Sweden, ed.byEdvinsson,Rodney,TorJacobsonandDanielWaldenström,VolI:ExchangeRates,Prices,andWages,1277–2008,SverigesRiksbankandEkerlidsFörlag:Stockholm.
Dincer,Nergiz.N.andBarryEichengreen(2014),‘Centralbanktransparencyandindependence:updatesandnewmeasures’,International Journal of Central Banking,Vol.10,No.1,pp.189–253.
Edvinsson,RodneyandJohanSöderberg(2010),‘TheevolutionofSwedishconsumerprices 1290–2008’,Ch.8inHistorical Monetary and Financial Statistics for Sweden, ed.byEdvinsson,Rodney,TorJacobsonandDanielWaldenström,Vol1:ExchangeRates,Prices,andWages,1277–2008,SverigesRiksbankandEkerlidsFörlag:Stockholm.
Edvinsson,Rodney(2014),‘ThegrossdomesticproductofSwedenwithinpresentborders, 1620–2012’,Ch.4inHistorical Monetary and Financial Statistics for Sweden, ed.byEdvinsson,Rodney,TorJacobsonandDanielWaldenström,Vol2:HousePrices,StockReturns,NationalAccounts,andtheRiksbankBalanceSheet,1620–2012,SverigesRiksbankandEkerlidsFörlag:Stockholm.
Faust,JonandEricM.Leeper(2015),‘Themythofnormal:thebumpystoryofinflationandmonetarypolicy’,inInflationDynamicsandMonetaryPolicy,JacksonHoleEconomicPolicySymposiumProceedings,FederalReserveBankofKansasCity.
Filardo,AndrewandBoris.Hofmann(2014),‘Forwardguidanceatthezerolowerbound’,BIS Quarterly Review, March,pp.37–53.
Fischer,Stanley(2016),‘Whyareinterestratessolow?Causesandimplications’,speechattheEconomicClubofNewYork,17October,BoardofGovernorsoftheFederalReserveSystem.
Goodfriend,MarvinandMervynKing(2016),ReviewoftheRiksbank’sMonetaryPolicy2010–2015,reporttotheCommitteeonFinanceoftheRiksdag(2015/16:RFR7),SverigesRiksdag[Sweden’sParliament].
Greenspan,Alan(2005),‘TestimonyofChairmanAlanGreenspan’,SemiannualMonetaryPolicyReporttotheCongressbeforetheCommitteeonBanking,Housing,andUrbanAffairs,speechattheUS.Senate,WashingtonD.C.,17February,TheBoardofGovernorsoftheFederalReserveSystem.
Grytten,OlaH.(2004a),‘AconsumerpriceindexforNorway1516–2003’,Ch.3inHistorical Monetary Statistics for Norway 1819–2003,ed.byEitrheim,Øyvind,JanT.KlovlandandJanF.Qvigstad,OccasionalPaperNo.35,NorgesBank.
Grytten,OlaH.(2004b).‘ThegrossdomesticproductforNorway1830–2003’,Chapter6inHistorical Monetary Statistics for Norway 1819–2003,ed.byEitrheim,Øyvind,JanT.KlovlandandJanF.Qvigstad,OccasionalPaperNo.35,NorgesBank.
Iversen,Jens,StefanLaséen,HenrikLundvallandUlfSöderström(2016),‘Real-timeforecastingformonetarypolicyanalysis:thecaseofSverigesRiksbank’,WorkingPaperNo.318,SverigesRiksbank.
Jansson,Per(2014),‘Swedishmonetarypolicyafterthefinancialcrisis:mythsandfacts’,speechattheSvDBankSummit,Stockholm,3December,SverigesRiksbank.
Klovland,JanT.(2013).‘ContributionstoahistoryofpricesinNorway:monthlypriceindices, 1777–1920’,WorkingPaperNo.23,NorgesBank.
Klovland,JanT.(2004)‘HistoricalExchangeRateData1819–2003’,Ch.7inHistorical Monetary Statistics for Norway 1819–2003,ed.byEitrheim,Øyvind,JanT.KlovlandandJanF.Qvigstad,OccasionalPaperNo.35,NorgesBank.
NorwegiaN moNetary policy seeN from abroad80
Leeper,EricM.(2016),‘Whycentralbanksshouldcareaboutfiscalrules’,inRethinkingthecentralbank’smandate,Sveriges Riksbank Economic Review,No.3,specialissue,pp.109–125.
Lindé,JesperandAndréReslow(2017),‘It’samyththattheRiksbank’sforecastshavebeengovernedbymodels’,Sveriges Riksbank Economic Review,No.1,pp.28–50.
Lindé,Jesper,FrankSmetsandRafaelWouters(2016),‘Challengesforcentralbanks’macromodels’,WorkingPaperNo.323,SverigesRiksbank.
Lobell,H.(2010),‘ForeignExchangeRates1804–1914’,Ch.6inHistorical Monetary and Financial Statistics for Sweden, ed.byEdvinsson,Rodney,TorJacobsonandDanielWaldenström,Vol1:ExchangeRates,Prices,andWages,1277–2008,SverigesRiksbankandEkerlidsFörlag:Stockholm.
Lommerud,KjellE.,NilsGottfriesandErikBruce(2016),‘NorgesBankWatch2016:anindependentevaluationofmonetarypolicyinNorway’,CenterforMonetaryEconomics,BINorwegianBusinessSchool.
Mester,LorettaJ.(2016),‘Fivepointsaboutmonetarypolicyandfinancialstability’,inRethinkingthecentralbank’smandate,Sveriges Riksbank Economic Review,No.3,specialissue,pp.39–48.
Nilsson,Christian,JohanSöderbergandAndersVredin(2014),‘ThesignificanceofpensionsavingfortheSwedishfinancialsystem’,EconomicCommentaryNo.3,SverigesRiksbank.
Rachel,LukaszandThomasD.Smith(2015),‘Seculardriversoftheglobalrealinterestrate’,StaffWorkingPaperNo.571,BankofEngland.
Schnabel,Isabel(2016),‘Whatroleforcentralbanksinsafeguardingfinancialstability?’,inRethinkingthecentralbank’smandate,Sveriges Riksbank Economic Review,No.3,specialissue,pp.49–58.
Sims,ChristopherA.(2016),‘Fiscalpolicy,monetarypolicyandcentralbankindependence’,inDesigningresilientmonetarypolicyframeworksforthefuture,JacksonHoleEconomicPolicySymposiumProceedings,FederalReserveBankofKansasCity.
SverigesRiksbank(2016),‘TheRiksbank’sinflationtarget:targetvariableandinterval’,RiksbankStudies,September,SverigesRiksbank.
BankofEngland(2010),‘Threecenturiesofmacroeconomicdata’,database,Ver.2.3,30June,BankofEngland.
Woodford,Michael(2012),‘Inflationtargetingandfinancialstability’,Sveriges Riksbank Economic Review,No.1,pp.7–32.