Watching Sweden

Watching Sweden’s monetary policy is important. It tried to do the right thing in 2010 and in 2011. Growth and inflation came down. Got pilloried by the likes of Paul Krugman and Lars Svensson (Bernanke’s former colleague at Princeton). Bernanke wrote a blog post in April 2015 too holding up the Swedish Riksbank as an example of what not to do. Of course, curious readers would have noted the comment by Per Jansson, deputy Governor at the Swedish Riksbank., below Bernanke’s post. His speech, delivered in December 2014, is here. Still worth reading.

Now, Sweden’s GDP growth has rebounded but the policy rate is at -0.35%. GDP growth at 3.9% in 2015 must be the envy of many Western governments. But, its housing bubble should not be a source of envy but worry. When it bursts, all the GDP growth of the last few years induced by unconventional and loose monetary policy will be dialled back. Back to square one. OF course, Lars Svensson, Paul Krugman and Ben Bernanke will not only be unrepentant would continue to peddle their theories for hefty fees. I doubt if Krugman took Per Jansson’s advice here seriously. FT will feature them prominently. Depressing.

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