New issue of the journal Sveriges Riksbank Economic Review
Date
17/10/2012
We open this issue of the Riksbank's journal with three articles focusing on issues that are highly significant to the development of the monetary-policy work of central banks.
Heidi Elmér, Gabriela Guibourg, David Kjellberg and Marianne Nessén analyse the monetary policy measures taken by the Riksbank during the financial crisis of 2008-2009, when the Riksbank implemented not only conventional measures, such as substantially cutting the repo rate to counteract the fall in demand for goods and services, but also a number of extraordinary measures. For example, the Riksbank offered SEK and USD loans to the Swedish banks at longer maturities. The aims of these loans were to ensure that there was sufficient liquidity in the financial system, to counteract the development of high risk premiums and to improve the monetary-policy transmission mechanism. These measures helped to lower both short- and long-term interest rates during the crisis, which meant, for example, that the banks' costs for funding new household mortgages could be kept down. Experience from the financial crisis shows that it is important for the Riksbank to be constantly prepared to quickly take appropriate extraordinary measures when the need arises.
Mikael Carlsson analyses the relationship between monetary policy, inflation and unemployment. He shows that this relationship is affected by the type of theoretical model used. In the long run, unemployment is affected by the regulatory frameworks and institutions that govern the labour market. According to the older academic literature, it is unemployment's deviation from a constant long-run rate that affects inflation. In a modern new-Keynesian model with rigid wages and prices this does not apply. Here inflation is affected by the gap between the observed rate of unemployment and the rate that would prevail if all prices and wages adjusted without frictions. This difference means that it is important to clarify the underlying conceptual framework that is being used when discussing the impact of monetary policy on inflation and unemployment.
Jyry Hokkanen, Tore Melin and Alexander Nilson describe the methods used for, and the results of, the business survey that the Riksbank carries out three times a year. The aim of this survey is to provide information about the economic climate before the official statistical outcomes are available. The responses to the questions put to the companies thus complement the economic statistics and can therefore be used as an early basis for monetary policy assessments. They also help the Riksbank to perform a qualitative analysis that aims to discover and understand new aspects of economic development from the companies' perspective. The interviewed companies thus constitute an important network that facilitates the Riksbank's analysis of the business sector. The Riksbank also processes the companies' responses to create a quick quantitative indicator of economic activity. It was this indicator, together with the qualitative analysis, that enabled the business survey to capture the economic downturn in 2008 and the recovery in 2009 at an early stage.
We also present two articles that highlight some economic aspects of risk and efficiency in certain parts of the financial system.
Reimo Juks analyses how banks in Sweden and other countries encumber assets in order to reduce their funding costs. Part of this pledging may be justified in periods of financial unease, when investors seek safety at the same times as there is a shortage of lowrisk securities. The possibility to encumber assets or pledge collateral thus can make funding less expensive. However, if the encumbering of assets becomes very common it may also contribute to the creation of risks in the financial system. This is because the encumbering of assets has the potential to shift risks to non-secured creditors. If unsecured creditors count on being able to transfer some of this risk to the government, and thus to the taxpayers, there is a possibility that the proportion of encumbered assets in the banking sector will be larger than is socially justified. To counteract this possibility it may be appropriate for the authorities to strengthen market discipline. This can be done, for example, by making the deposit guarantee dependent on the level of encumbrance and by increasing the transparency of the banks' asset encumbrance.
Björn Segendorf and Thomas Jansson investigate the efficiency of the Swedish payment system. They show that the use of cash or debit and credit cards in Sweden is relatively efficient. However, the authors' assessment is that Swedish consumers use cash more often than is socially optimal. There may therefore be good reasons to encourage consumers to use debit cards to a greater extent. One way to do this is introduce transparent and cost-based fees for different types of payment. It may be necessary to compensate the consumers in order to make it easier for them to accept such fees, for example by offering better interest rates on current accounts or lower prices in the shops. It may also be necessary to complement such fees with simple and targeted information.
