Ekholm: Monetary policy, cyclical stabilisation and macroprudential policy
On Wednesday Deputy Governor Karolina Ekholm held a speech at the Confederation of Swedish Enterprise, where she pointed out that a more expansionary economic policy could have counteracted the low demand pressure in the Swedish economy and contributed to a more positive development of the labour market. She believed that the lessons of the financial crisis have meant that financial stability has come to take priority over standard stabilisation of the business cycle. "The ability to use monetary and fiscal policy to stabilise growth in aggregate demand has been limited by concerns about financial stability," she said.
But, Ms Ekholm emphasized that the Swedish economy needs a workable policy for business cycle stabilisation - while various risks and imbalances in the financial system are also taken care of and stability is safeguarded. According to her, a separate macroprudential policy is therefore important. It would make it possible for monetary policy - which according to her is mainly responsible for stabilising the business cycle - to focus on stabilising inflation around the inflation target and resource utilisation around a sustainable level.
Ms Ekholm therefore welcomed the recently published interim report of the Financial Crisis Commission on preventing and managing financial crises, while calling for a specific discussion on the division of responsibility between the relevant authorities; an issue she wanted to return to when the Riksbank submits its response to the interim report later in the spring.
Read the entire speech.
