New issue of the journal Sveriges Riksbank Economic Review

Date 21/11/2014

• Hanna Armelius, Carl-Johan Belfrage and Hanna Stenbacka analyse why world trade has been so weak since 2008. One possible explanation is that the crisis has contributed to increased uncertainty regarding the future among households and companies, which has held back the provision of credit and trade. Another explanation is that the long-run globalisation trend prior to the crisis has slowed down, as a result of the crisis and new types of trade barriers, which may be difficult to measure. The authors use an econometric model that includes a globalisation trend, measures of financial stress and a new measure of economic policy uncertainty. They find empirical support for both explanations, but find the former, increased uncertainty, more appealing as it is somewhat more robust. If this is the case, world trade may recover faster when uncertainty over the future declines.

 

• Daniel Hansson, Louise Oscarius and Jonas Söderberg analyse the role played by shadow banking in the Swedish financial system. Shadow banks played a major role in the global financial crisis and are not subject to the same regulation and supervision as normal banks. The authors show that shadow banking in Sweden is relatively small, compared with the traditional banking sector in Sweden and compared with shadow banking in many other countries. Moreover, the Swedish shadow banking sector is largely comprised of investment funds that are regulated and under the supervision of Finansinspektionen (the Swedish financial supervisory authority). Shadow banks in Sweden contribute to the funding of the Swedish banks, primarily through investments in the banks' fixed-income securities. However, money market funds in the United States contribute more than twice as much to the Swedish banks' funding, compared to the Swedish shadow banks. This means that shadow banking abroad has greater significance for the Swedish financial system than shadow banking in Sweden. In conclusion, the authors point out the need to follow the development of Swedish and foreign shadow banking, as it can influence financial stability in Sweden.

 

• Virginia Queijo von Heideken and Peter Sellin analyse the role played by the liquidity surplus in the Swedish banking system for the Riksbank's implementation of monetary policy and the transmission from the repo rate to interbank rates with short maturities. The background to this is that the Swedish banking system has in recent years moved from a liquidity deficit to a liquidity surplus in relation to the Riksbank. This means that the Riksbank now takes in liquidity from the banking system instead of supplying liquidity, as before. The surplus in the banking system has moreover grown over time, for several reasons. This is because the Riksbank's annual payment of profits to the Treasury and its interest and administration fees are not deducted from the return on its assets, but instead affect the size of the monetary policy transactions. Moreover, the surplus has grown as a result of a decline in the general public's demand for banknotes and coins. The authors find, with the support of econometric analysis, that the increased liquidity surplus in the Swedish banking system since 2007 has been linked to downward pressure on short-term interbank rates. However, this effect is minor, as most of the surplus is invested in Riksbank Certificates. Another result is that the larger the surplus is, the less the turnover will be among the monetary policy counterparties on the overnight market. This effect is also minor, however, as most of the surplus is invested in Riksbank Certificates. Similar patterns are also visible in other countries that have had a liquidity surplus in the banking system over a long period of time.