Swedish Central Bank Research Articles

Banks as existential but uncontested Evil of the world economy (about the 2022 Nobel prize in economics)

The author examines the complex of reasons that prompted the Nobel Committee to award the Nobel Prize in Economics for 2022 to former Federal Reserve System chairman B. Bernanke (2006-2014). The award was granted not only to B. Bernanke, now a leading researcher at the Brookings Institute (Washington, D.C.), as well as to two other American economists - a professor at the University of Chicago, Booth School of Business D. Diamond and a professor of Washington University (St. Louis, Missouri) F. Dybvig for their research of the mechanism of the banking system functioning during financial crises. It is emphasized that the awarding of the Nodel prize to B. Bernanke and two other American economists was politically biased and intended to “rehabilitate” the monetary policy pursued by the FRS in 2007-2009 during the Great Recession. In the long run it led in the early 2020s to record inflation rate in 40 years. During his tenure as Chairman of the Fed, Bernanke, as a supporter of the monetary theory of the Great Depression of the 1930s, proposed in 1963 by the head of the Chicago School of monetarists M. Friedman, deliberately departed from the main regulatory norm of the former monetary policy, formulated in 1993 by Stanford University professor J. Taylor (the so-called “Taylor rules”). It provided for the constant excess of the federal fund rate over the current inflation rate in order to keep the consumer price index growth under constant control of the US monetary authorities. As a result of arbitrary actions by the FRS under the leadership of B. Bernanke, at the end of 2008 the federal fund rate was lowered to zero, and since then it has been consistently below the inflation index. As a result, in the early 2020s, the Fed lost control over inflationary processes in the American economy. These actions of the Fed were a direct consequence of the incorrect diagnosis made by B. Bernanke. He stated that the main threat to the American economy in XXI century, as in the 1930s, is a hypothetical deflationary mode of operation, although since the end of World War II the US economy functioned exclusively in an inflationary mode. Combined with the uncontrolled use of the printing press and exorbitant lending in the period 2007-2009 the Fed managed to minimize the crisis in the US banking system, in fact, to save it, at the cost of transforming the so-called “liquidity trap” into a “debt trap”. The Nobel Prize was awarded to B. Bernanke by the Swedish Central Bank for saving both the American and the leading segments of the world banking system, however, at present, the general population and various sectors of the real economy have to pay for such experiments in monetary policy.

Replacing bank money with base money: Lessons for CBDCs from the ending of private banknotes in Sweden

A number of central banks have started to investigate the possibility of issuing so-called Central Bank Digital Currencies (CBDCs). The aim may be to compete with cryptocurrencies of different kinds but also to replace digital commercial bank money with central bank issued digital money, i.e. replacing bank money with central bank-issued basemoney. In this paper we study a similar experiment when the Swedish central bank, the Riksbank, in 1903 replaced private banknotes with their own notes. The result of this policy was a massive increase in commercial bank credit due to the increase in base money, spurring the ongoing boom even further. A boom that worsened the 1907 crisis. The result is thus questioning the notion that increased monetary issuance by a monetary authority to replace other financial assets as private money or cryptoassets should lead to increased financial stability – as, in fact, it led to the opposite.

La neutralité flexible. La Riksbanken et la souveraineté de la Suède (1936-1948)

The article examines the issue of Swedish neutrality between 1940 and 1945 from the perspective of monetary sovereignty and the role played in this respect by the Swedish central bank, the Riksbanken. Faced with pressure from the Reich, the economy of Sweden was fully integrated into the German war effort from April 1940. But in 1944, the changing balance of military power was in its favour and in 1945 it took advantage of its comfortable economic and financial situation to implement an ambitious strategy that was supposed to contribute to the economic and political reconstruction of its neighbours, both in the West and in the East, and thus to peace. But this strategy soon came up against the geopolitical choices of the American Congress, which also considered that having traded with Germany during the war meant having been its accomplices. The conclusion underlines the very active role of the Riksbanken and its president Dag Hammarskjöld, the profound innovations introduced by the war in the management of public finances and the extent to which Swedish sovereignty was dependent on changes on the international scene.

The Impact of Nominal Negative Interest Rates on the Economy – Literature Review

Until recently, negative nominal interest rates of the central bank were in the sphere of theoretical considerations. In 2009, the Swedish Central Bank was the first to implement a negative interest rate policy (NIRP). Since then, the NIRP has been implemented by the National Bank of Denmark, the European Central Bank, the Swiss National Bank and the National Bank of Japan. Unfortunately, due to the large number of simultaneous factors affecting the economy, it is extremely difficult to determine the long-term effects of NIRP implementation. Furthermore, the magnitude of the impact and the global extent of the coronavirus pandemic would have a significant impact on the dilatation, so the focus was on pre-pandemic issues. This paper is a literature review and it aims to synthetize information about the impact of negative interest rates on the market – in financial and real spheres. In this paper, both the results of scientific research and the opinions of experts were used, then the impact of negative nominal interest rates on the financial and real sectors was assessed. The results show that most authors highlight an adverse impact of negative interest rates on the stability of the banking sector regardless of the country. The greatest fear of the NIRP implementation by central banks is that the potential behavior of economic entities cannot be predicted with certainty, especially when it comes to cash deposit withdrawals from banks.

Privatizing Cash: Currency and Public Goods in Sweden

Abstract Across the world, national currencies—public goods that emerged out of a previous era of currency proliferation—are now competing with private alternatives. As paper and coins fall into disuse, the seigniorage that helps to fund the circulation and regulation of currency diminishes, while their capacity to bind together states and citizens decreases in equal measure. The Swedish central bank’s response to these threats, which includes issuing the world’s first national digital currency, charts a course that all central banks must consider in the near future.

Estimating Monetary Policy Reaction Functions: Comparison between the European Central Bank and Swedish Central Bank

This study estimated and compared a forward-looking Taylor-type reaction function between the European Central Bank (ECB) and Swedish Central Bank...

A forecast evaluation of the Riksbank's policy‐rate projections

AbstractThis paper evaluates the forecasting performance of the policy‐rate path published by the Swedish central bank, the Riksbank. Using data from 2007 to 2019, I find that the Riksbank's forecast has been relatively inaccurate compared to a forecast inferred from market pricing. My analysis indicates that this result is primarily driven by events during the period 2010–2014. This coincides with a period during which the Riksbank arguably “leaned against the wind” and a potential link is discussed in the paper.

Central bank digital currency and alternative currencies: parallel paradigms

Central bank digital currencies have been on the rise for the past few years, especially after the emergence of cryptocurrencies like Bitcoin, Ethereum, Ripple and others. Leading central banks like the People's Bank of China and Riksbanken (Swedish Central Bank), and some of the other central banks around the world have been looking to develop and test central bank digital currencies around the world. Nonetheless, the main question that we need to answer is if the cryptocurrencies or central bank digital currencies (CDBC) will become the main form of money in the future or will these currencies harmoniously co-exist within the economy paradigm? This paper applies monetary and political economy concepts to discuss how a potential central bank digital currency can be developed and how it would compete with cryptocurrencies. In conclusion, however, the introduction of a central bank digital currency will reduce the monetary policies issues rather than create new issues and this paper will explain how this can be achieved.

Central Bank Digital Currency and Alternative Currencies: Parallel Paradigms

Central bank digital currencies have been on the rise for the past few years, especially after the emergence of cryptocurrencies like Bitcoin, Ethereum, Ripple and others. Leading central banks like the People's Bank of China and Riksbanken (Swedish Central Bank), and some of the other central banks around the world have been looking to develop and test central bank digital currencies around the world. Nonetheless, the main question that we need to answer is if the cryptocurrencies or central bank digital currencies (CDBC) will become the main form of money in the future or will these currencies harmoniously co-exist within the economy paradigm? This paper applies monetary and political economy concepts to discuss how a potential central bank digital currency can be developed and how it would compete with cryptocurrencies. In conclusion, however, the introduction of a central bank digital currency will reduce the monetary policies issues rather than create new issues and this paper will explain how this can be achieved.

Do Women Matter in Monetary Policy Boards?

We construct a new dataset on the presence of women on central bank monetary policy committees for a set of 103 countries, over the period 2002-2016. We document an increasing share of women in monetary policy committees, which is mainly associ- ated with a higher overall presence of women in central banks and less so with other institutional factors or country characteristics. We then investigate the impact of this trend on monetary policymaking by estimating Taylor rules augmented to include the share of women on monetary policy committees. We show that central bank boards with a higher proportion of women set higher interest rates for the same level of in- flation. This suggests that women board members have a more hawkish approach to monetary policy. We confirm this result by analysing the voting behaviour of members of the executive board of the Swedish Central Bank during the period 2000-2017.

Do Women Matter in Monetary Policymaking?

We construct a new dataset on the presence of women on central bank monetary policy committees for a set of 103 countries, over the period 2002-2016. We document an increasing share of women in monetary policy committees, which is mainly associated with a higher overall presence of women in central banks and less so with other institutional factors or country characteristics. We then investigate the impact of this trend on monetary policymaking by estimating Taylor rules augmented to include the share of women on monetary policy committees. We show that central bank boards with a higher proportion of women set higher interest rates for the same level of inflation. This suggests that women board members have a more hawkish approach to monetary policy. We confirm this result by analysing the voting behaviour of members of the executive board of the Swedish Central Bank during the period 2000-2017.

Criteria for 'Good' Justifications

Many institutions in a democratic society wield important power by virtue of the decisions they make. These decisions may concern individuals or have a more general impact on society. It goes without saying today that this exercise of power must be accounted for. A supreme court’s reasoning is given in its judgements. A central bank’s reasoning is given in the decision-making body’s minutes. In this paper, we develop criteria for what constitute good written justifications for a decision, not what makes a good decision per se. We look at the two institutions we know best: supreme courts and central banks. Of course, these are not the only institutions that exercise power on behalf of the state, and we also ask whether our criteria could be applied more generally. We assess a selection of supreme court judgements and monetary policy decisions in various countries qualitatively against our criteria, and find that practice largely conforms to the criteria. There are some common features between supreme courts and central banks. In recent years there has been a development in the way the judgments are written in the UK Supreme Court. Earlier, each judge wrote his votum. Now they are writing a common text. With individual writing, there were many different formulations of the normative text. It is easier for the public to relate to one legislative text. The UK Supreme Court, under the presidency of Lord Neuberger, has therefore gradually moved towards writing a joint text. John Roberts, the US Chief Justice, thought that judges should be worried when they are writing separately about the effect on the court as an institution. What about the minutes of the central banks? Professor Alan Blinder at Princeton argues that a central bank that speaks with a cacophony of voices has no voice at all. Professor Otmar Issing, the former Chief Economist and Member of the Board of the ECB, believes that there is a danger that individual minutes provide an incentive for individual members to put themselves ahead of the institution. We also test empirically whether the institutions’ decisions and the justifications for these decisions are communicated in clear language. Our analysis is inspired by Bank of England chief economist Andrew Haldane’s speech “A little more conversation, a little less action”, and by the report “Bankspeak: The Language of World Bank Reports 1946-2012” by Franco Moretti and Dominique Pestre at Stanford Literary Lab. We analyse more than 6,000 central bank and supreme court decisions from the past decade and find considerable differences in length and readability across countries and institutions. The grand chamber decisions of the European Court of Human Rights are by far the longest, while the European Court of Justice employs the most complex language. The Danish central bank keeps things briefest and uses the clearest language, but also has the simplest regime to explain. The Swedish central bank’s minutes stand out as both long and complex, while the Norwegian central bank is unusually concise. Moretti and Pestre analysed the text of all World Bank reports and found quantitative indications that the language of the reports had moved in the wrong direction in terms of readability. We perform the same tests on central banks and supreme courts and find that these institutions’ language has not moved in the same negative direction. Former Bank of England governor Mervyn King argued that the design of an institution “must reflect history and experience”, and there is no doubt that each institution’s way of writing is influenced by its own history. This is what economists refer to as “path dependence”. We wonder, however, whether there is rather too much path dependence in many cases, and whether the institutions in question might benefit from looking at trends and learning from other institutions both at home and abroad. In our work on this paper, we have been particularly wary of phrases along the lines of “based on a general assessment”. Alarm bells sound whenever we see them, especially with any frequency, as they are liable to conceal rather than illuminate the true rationale.

Criteria for 'Good' Justifications

Many institutions in a democratic society wield important power by virtue of the decisions they make. These decisions may concern individuals or have a more general impact on society. It goes without saying today that this exercise of power be accounted for. supreme court's reasoning is given in its judgements. central bank's reasoning is given in the decision-making body's minutes. In this paper, we develop criteria for what constitute good written justifications for a decision, not what makes a good decision per se. We look at the two institutions we know best: supreme courts and central banks. Of course, these are not the only institutions that exercise power on behalf of the state, and we also ask whether our criteria could be applied more generally. We assess a selection of supreme court judgements and monetary policy decisions in various countries qualitatively against our criteria, and find that practice largely conforms to the criteria. There are some common features between supreme courts and central banks. In recent years there has been a development in the way the judgments are written in the UK Supreme Court. Earlier, each judge wrote his votum. Now they are writing a common text. With individual writing, there were many different formulations of the normative text. It is easier for the public to relate to one legislative text. The UK Supreme Court, under the presidency of Lord Neuberger, has therefore gradually moved towards writing a joint text. John Roberts, the US Chief Justice, thought that judges should be worried when they are writing separately about the effect on the court as an institution. What about the minutes of the central banks? Professor Alan Blinder at Princeton argues that a central bank that speaks with a cacophony of voices has no voice at all. Professor Otmar Issing, the former Chief Economist and Member of the Board of the ECB, believes that there is a danger that individual minutes provide an incentive for individual members to put themselves ahead of the institution We also test empirically whether the institutions' decisions and the justifications for these decisions are communicated in clear language. Our analysis is inspired by Bank of England chief economist Andrew Haldane's speech A little more conversation, a little less action, and by the report Bankspeak: The Language of World Bank Reports 1946-2012 by Franco Moretti and Dominique Pestre at Stanford Literary Lab. We analyse more than 6,000 central bank and supreme court decisions from the past decade and find considerable differences in length and readability across countries and institutions. The grand chamber decisions of the European Court of Human Rights are by far the longest, while the European Court of Justice employs the most complex language. The Danish central bank keeps things briefest and uses the clearest language, but also has the simplest regime to explain. The Swedish central bank's minutes stand out as both long and complex, while the Norwegian central bank is unusually concise. Moretti and Pestre analysed the text of all World Bank reports and found quantitative indications that the language of the reports had moved in the wrong direction in terms of readability. We perform the same tests on central banks and supreme courts and find that these institutions' language has not moved in the same negative direction. Former Bank of England governor Mervyn King argued that the design of an institution must reflect history and experience, and there is no doubt that each institution's way of writing is influenced by its own history. This is what economists refer to as dependence. We wonder, however, whether there is rather too much path dependence in many cases, and whether the institutions in question might benefit from looking at trends and learning from other institutions both at home and abroad. In our work on this paper, we have been particularly wary of phrases along the lines of based on a general assessment. Alarm bells sound whenever we see them, especially with any frequency, as they are liable to conceal rather than illuminate the true rationale.

The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn

In 1761, the biggest adventure in mercantile finance since the South Sea bubble was underway—in Sweden. Two parties in the Riksdag, the Hats and the Caps, had battled back and forth for twenty years, much of the fifty-year span of Swedish history known as “the age of freedom.” The Hats favored vigorous promotion of a nascent industrial revolution through easy credit—paper-money mercantilism similar to that of John Law’s Banque Royale fifty years before. Domestic prices had risen far above parity with prices in gold. The Hats ascribed high prices to the trade deficit. The Caps attributed inflation and currency depreciation to the reckless issue of paper money. They favored a sharp deflation back to old gold parity.Enter Pehr Niklas Christiernin, (1725–1799), a contemporary of Adam Smith, professor of law at university of Uppsala, and the author of Lectures on the High Price of Foreign Exchange in Sweden (1761). Though a Hat by virtue of his position, Christiernin accepted the argument of the Caps, but warned that deflation would produce massive unemployment. Instead, he recommended stabilizing prices at current levels by tightening monetary policy. Sure enough, when the Caps came to power in 1765 and cut prices in half, the big depression Christiernin had predicted ensued. The Hats returned to power, but nothing was resolved until a coup in 1772 replaced parliament with an absolute monarchy. Convertibility at existing prices was restored in 1777.Christiernin’s was the first clear theory of paper money, a big advance over the notions of John Law, the architect of the South Sea bubble. The same controversy would be repeated during the bullionist controversies in Britain, 1797–1810, when the same lessons were learned. Even though he had anticipated David Hume and Henry Thornton, Christiernin left no trace in the literature until he was rediscovered and introduced to readers of English, in 1963, by Robert V. Eagly. The story is laid out by Jürg Niehans in A History of Economic Theory, Classic Contributions 1720–1980 (Baltimore, 1990), from which the foregoing account is largely drawn.The episode is mentioned in this review because the Christiernin Lectures, along with contributions by various Swedish economists of the nineteenth and twentieth centuries, are part of the foundation on which the authority of the newest Nobel prize is thought to rest, at least by those involved in its creation. Offer and Söderberg do not mention it in their book. Authors are entitled to write what they want, and Nobel Factor contains much that is new and interesting. It is framed as a discourse about large twentieth-century trends in historical views that saw “market liberalism” largely displace “social democracy” after 1970. This “market turn”—a worldwide change in fundamental attitudes, in which metaphors of buying and selling between individuals replaced social democratic norms of obligations to family, group, class, and nation—is left unexplained, except insofar as the authors view the prize in economic sciences as mainly a marketing campaign. The prize was added to the original five, in 1969, by the Nobel Foundation and the Royal Swedish Academy of Sciences.The authors examine the role of Assar Lindbeck—twenty-four years on the prize committee as well as an extensive career in Swedish public affairs—and conduct a study to document what they consider as two deliberate omissions from the list of prizes given (Joan Robinson and John Kenneth Galbraith). But the heart of the book is an archive-based account of where the money for the prize came from—a gift of the Swedish Central Bank, derived from earnings on its open-market operations, designed to commemorate the tercentenary of its founding. According to the authors, Governor Per Asbink mainly sought to buttress the independence of monetary policy from the government’s centralized wage bargaining. The endowment of the prize was “an afterthought, a whimsy almost…something of a farce” (67). The context of the prize’s origins is said to be “more telling than the prize itself.”What the book does not contain is any discussion of the opposing point of view—the conviction, widely shared by economists, that their discipline has learned much about the world since the founding of central banks in the seventeenth century, and that during the middle years of the twentieth century the field crossed a threshold to become a fledgling science. The fiftieth anniversary of the creation of the economics prize is looming. This book, which apparently owes its genesis to George Soros’ Institute for New Economic Thinking, is the first of what will surely be several others (Philp Mirowski hived off from this project to write his account). Archives apparently will open gradually to historians after 2019.

Notes from the Editors, December 2016

buy this issue In October 2016, the Sveriges Riksbank (Swedish Central Bank) Prize in Economic Sciences in Memory of Alfred Nobel—commonly but incorrectly called the Nobel Prize in Economics—was awarded to two European-born, U.S.-based economists, Oliver Hart and Bengt Holmström, for their work on contracts related to executive pay. Hart and Holmström were lauded for having theorized what was thought to be the optimal mix of risk and incentives in pay packages for corporate executives, thereby determining the appropriate combination of basic salary, bonuses, and share options. In other words, they received the Riksbank Nobel Memorial Prize for their efforts to rationalize the exorbitant paychecks of CEOs and other corporate leaders—a direct service to big business.Click here to purchase a PDF version of this article at the Monthly Review website.

How the German crisis of 1931 swept across Europe: a comparative view from Stockholm†

According to conventional wisdom, the fall of the Swedish currency in September 1931 was caused by the sterling crisis. This article shows that the road towards devaluation began earlier and that financial linkages with Germany proved to be more important than Sweden's economic and monetary relations with Great Britain. It all started in late 1929 when the Swedish financier Ivar Kreuger gave a loan to the German government in exchange for the match monopoly, thus tying his business ventures to Germany's solvency. In addition, a part of this loan was financed by large US dollar credits from the two largest Swedish banks that, in turn, accumulated a sizeable foreign short‐term deficit. When in June 1931 the German fiscal crisis began to escalate, international investors ceased to consider Sweden a safe haven because they knew about the linkages between the German government, Kreuger, and the Swedish banking system. This downgrading, in combination with the foreign short‐term deficit of the banking sector, proved lethal for the reserve position of the Swedish central bank, once the international liquidity crisis in mid‐July 1931 erupted. The sterling crisis only put the final nail in the coffin.

How Informative Are Central Bank Minutes?

Abstract One characteristic feature of central banks today is that policy decisions are almost exclusively made by a committee rather than by a single policy maker. Another is that central banks endeavour to be transparent. Together, this has brought to the fore an important but so far unresolved issue: how much information about the committee’s deliberations should the central bank reveal? Does this kind of information make monetary policy easier to understand and predict, or does it make it harder? We address this issue by employing a novel method. We measure the sentiment and tone of the minutes of the Swedish central bank using an automated content analysis that converts the qualitative information in the minutes to a quantitative measure. We find that this measure is helpful in predicting future policy rate decisions.

The Information Content of Central Bank Minutes

One characteristic feature of central banks today is that policy decisions are almost exclusively made by a committee rather than by a single policy maker. Another is that central banks are considerably more transparent than they used to be. Together, this has brought to the fore an important but so far unresolved issue: to what extent should a central bank’s communication reflect the full spectrum of opinions among its committee members? Does information on all members’ views make monetary policy easier to understand and predict, or does it make it harder? We address this issue by employing a novel method. We measure the sentiment and tone of the minutes of the Swedish central bank using an automated content analysis that converts the qualitative information in the minutes to a quantitative measure. We find that this measure is useful in predicting future policy rate decisions.

Picking the Brains of MPC Members

This paper reports and analyzes the results from a questionnaire sent to all present and former members of the Riksbank’s Executive Board, the monetary policy committee (MPC) of the Swedish central bank. The questions cover a number of issues discussed in the growing literature on monetary policy making by committees. The paper thus relates research to the views of practitioners in a way that has not been done before. We find, among other things, that many members consider the six-person strong Riksbank MPC to be slightly too large, that it is very common that members have decided before the policy meeting how they will vote, and that members, when forming their opinions, consider input from the staff more important than input from their colleagues.

Central Banking System - A Bench Marking Study of India and Sweden

Early 1990s marked a watershed in the history of Indian and Swedish economies. Faced with a balance of payment crisis, both economies undertook extensive reform programmes which impacted almost all spheres including the financial sector. The ensuing rapid changes in almost all segments of the financial sector forced the two central banking systems to undergo changes. Thus, the central banks of these two countries transformed continuously, functionally and structurally in response to the changed polices. During the 15 years of economic reform, the RBI (Indian Central Bank) and the Riksbank (Swedish Central Bank) have emerged as respected and significant institutions in public policy. Their changing role as a central bank in response to the changing needs of the respective economy in general and monetary policy in particular is appreciated world over. They now play a crucial key role in the economies. This paper provides a comprehensive comparison of the Indian Central Banking System and the Swedish Central Banking System with some suggestions.