New issue of the journal Economic Review
Date
10/02/2012
This year’s first edition of the Riksbank’s journal contains three articles and a commentary that in various ways concern the objectives, regulations and forms for economic policy, giving consideration to developments in the financial system and to the financial crisis. The focus is on the lessons learnt from the crisis with regard to monetary policy and the policy for financial stability.
Central banks' monetary policy is normally balanced to stable inflation and resource utilisation around sustainable levels. Does this entail a risk that it will contribute to the build-up of financial imbalances, for instance, if globalisation helps hold back inflationary pressures? In this case, should monetary policy be formulated to reduce the risk offuture crises?
Michael Woodford assumes in his article that a high level of resource utilisation leads to higher leverage in the financial sector and that this in turn entails a greater risk of a financial crisis. There is then reason for a central bank to give consideration, in addition to stabilising inflation and resource utilisation, to the effect of leverage on the risk of a financial crisis.
Lars E.O. Svensson says in his comment on Michael Woodford's article that it is more efficient to use other means than the policy rate to influence leverage in the financial sector. Then monetary policy and financial stability policy can be conducted independently of one another, with separate objectives and separate instruments.
The financial crisis was to a great extent caused by a lack of insight into the risks in the financial system as a whole, by a lack of tools to counteract these risks and by confusion over the allocation of responsibility between the authorities. There is currently extensive international work under way to remedy these deficiencies. For instance, an entirely new policy area, known as macroprudential policy, is now emerging. This centres on detecting, analysing and mitigating risks to the financial system as a whole, unlike the traditional financial supervision, which focuses on the state of health of the individual institutions. Christina Nordh Berntsson and Johan Molin have written an article presenting their views on what macroprudential policy involves and which tools could be used to mitigate threats to the stability of the financial system. They also discuss the advantages and disadvantages of a number of potential institutional models for conducting macroprudential policy in Sweden.
The idea of a so-called Tobin tax, that is, a tax on financial transactions recurs now and then in the general debate. It is put forward by, for instance, Attac and the global fairness movement. The European Commission has recently presented a proposal to introduce a financial transaction tax in the EU. Johan Almenberg and Magnus Wiberg show in their article that there is no clear evidence that the functioning of the financial markets would improve with the introduction of a transaction tax. There is also a risk that if similar taxes are introduced in individual countries without applying at a global level, the consequence will be that financial trading moves to other countries that do not tax this type of transaction.
