Economic commentary: Lower neutral interest rate in Sweden?

Date 07/11/2014

Interest rates in Sweden are very dependent on international developments and interest rates around the world have been falling over a long period of time. There is currently an international discussion on how far the current low interest rates reflect the fact that the neutral interest rate has fallen in the longer run and how much this could instead be due to temporary effects linked to weak economic activity.

The Economic Commentary discusses the concept of a neutral interest rate, that is, an interest rate that has neither an expansionary nor a contractionary effect on the economy, and possible explanations for the low interest rates in Sweden and abroad.

The analysis shows that the current very low interest rates are largely due to factors originating from the financial crisis. It is still too early to determine how long the effects of the crisis will last. But many of the factors that have pushed down global interest rates, and thereby interest rates in Sweden, can be expected to prevail in the medium term. The authors of the Economic Commentary therefore assess that it will take a long time before the interest rate returns to more normal levels in Sweden.

Read the Economic Commentary: Lower neutral interest rate in Sweden?

By Hanna Armelius, Paolo Bonomolo, Magnus Lindskog, Julia Rådahl, Ingvar Strid and Karl Walentin.
The authors work in the Monetary Policy Department.