And Antonio Fatas in “Riksbank and ECB: Reverse asymmetry” misses badly:
The Swedish central bank just lowered interest rates to zero because of deflation risks. This action comes after ignoring repeated warnings from Lars Svensson who had joined the bank in 2007 and later resigned because of disagreements with monetary policy decisions. What it is interesting is the parallel between Riksbank decisions and ECB decisions. In both cases, these central banks went through a period of optimism(!) that make them raise interest rates to deal with inflationary pressures.
In the case of Sweden interest rates were raised from almost zero to 2% in 2012. In the case of the ECB interest rates were raised from 1% to 1.5% during 2011. Also, in both cases, after a significant expansion in their balance sheets following the 2008 crisis, there was a sharp reduction in the years that followed. During 2010 the balance sheet of the Riksbank was reduced by more than 50%. In the case of the ECB it was later in 2013 when the balance sheet shrank by about 1 Trillion Euros. Their policies stand in contrast with those of the US Federal Reserve and the Bank of England where interest rates still have to start going up after the initial actions taken during the crisis and where the expansion in their balance sheet has not started to being reversed.
The Riksbank increased rates from “almost zero” (0.25%) in mid-2009 to 2% in mid-2011. That is it increased rates much faster than Fatas thinks!
It seems that throughout this period they were extremely worried about inflation. But the headline numbers were mostly reflecting oil price increases, a supply shock, something that throws sand in the gears of inflation targeting!
