New issue of Sveriges Riksbank Economic Review
Date
30/06/2009
This year’s second issue of Sveriges Riksbank Economic Review contains the following articles.
Monetary policy when the interest rate is zero by Ulf Söderström and Andreas Westermark
Most central banks use a short-term nominal interest rate as their primary monetary policy instrument. In Sweden the Riksbank uses the repo rate to influence the overnight rate on the interbank market and ultimately other interest rates and economic activity. However, nominal interest rates cannot be negative. In a deep recession the central bank may wish to make substantial cuts in the policy rate to stimulate aggregate demand. But when the policy rate reaches zero the central bank cannot cut it any further. This does not mean, however, that monetary policy is powerless when the interest rate is zero. In this article the authors discuss the different instruments at the central bank’s disposal to stimulate the economy when the interest rate is zero. The central bank can try to influence individuals’ expectations of future inflation or interest rates. The central bank can also use different types of measures to influence other interest rates in the economy and facilitate credit flow. Moreover, the central bank can use the exchange rate to stimulate the economy.
The monetary transmission mechanism by Elisabeth Hopkins, Jesper Lindé and Ulf Söderström
The monetary transmission mechanism describes how monetary policy affects the economy. In the short run monetary policy affects both the real economy – such as consumption, investment, production and employment – and inflation. In the long run, however, monetary policy has no or a very limited effect on the real economy. Monetary policy is then “neutral” and only determines the rate of inflation. In this article we discuss how monetary policy, through changes in the repo rate, affects first market interest rates in the economy and then aggregate demand, production and inflation. Thereafter we illustrate these effects in different models used at the Riksbank.
The transmission mechanism and the financial crisis by Elisabeth Hopkins, Jesper Lindé and Ulf Söderström
Monetary policy affects inflation and economic activity mainly by having an impact on interest rates in financial markets, for example in the interbank market, the bond market and various loan markets. The financial turbulence that started in summer 2007 and thereafter developed into a financial crisis has affected price setting on many of these markets. In this article we discuss how the financial crisis has affected market interest rates.
The connection between IT investments, competition, organisational changes and productivity by Bengt Pettersson
The growth of productivity in Sweden was high from the early 1990s up to 2006. Studies of development in the USA indicate that previous IT investments, organisational changes and internal training have played a decisive role in the strong growth of productivity since the mid-1990s. This article addresses the preliminary main results of a project at the Riksbank on the factors behind the earlier strong growth in productivity in Sweden. The working hypothesis in the project – and the question that is posed in this article – is whether the productivity growth trend in Sweden can be explained by factors similar to those in the USA. The results support this view. They show that the spread of IT investments throughout the economy is not sufficient to increase the productivity growth trend. Complementary investments in organisations and human capital are also required. It is only then that the companies can gain the greatest possible benefit from the IT investments.
The monetary policy landscape in a financial crisis by Stefan Ingves and Johan Molin
For some time now, the world has been in the throes of a severe financial and real economic crisis. A slightly unusual way of attempting to describe the crisis and its causes may be to start with a picture. The picture shows an oil painting that was done in 1842 by the English artist William Turner. It is called ”Snow Storm – Steam-Boat off a Harbour’s Mouth”. It is part of the collection at the Tate Gallery in London. This Turner should thus not be confused with the Head of the British Financial Services Authority, Lord Turner, who recently published a report that attracted a great deal of attention.
kontorsservicecenter@riksbank.se , fax +46-8-787 05 26 or telephone +46-8-787 00 00.
