Friday, June 20, 2014

Sweden's Biggest Party Demands Central Bank Shake-Up After Krugman Critic

Via The Swedish Wire:

Two months after Nobel laureate Paul Krugman criticized Sweden’s central bank for exposing the largest Nordic economy to a deflationary spiral, the country’s biggest party is seeking a monetary policy review, Bloomberg said.

"The Riksbank has not fulfilled the inflation target", Stefan Löfven, head of the Social Democrat party and the front-runner to become Sweden’s next Prime Minister, told the news bureau.

"If you give someone a task, we must be able to discuss whether they have managed that task or not, or the target to be more precise, I absolutely think we should be allowed to do that".

Nobel Laureate and Princeton University professor Paul Krugman said that Sweden’s central bank should delay plans for interest rate increases to avoid aggravating a significant housing bubble.

A low repo rate would limit risks of falling house prices and allow inflation to erode record household debt levels.

"It’s possible, I would even say probable, that Sweden has a significant housing bubble and it does have a high level of household debt", he said in an interview in Stockholm after speaking at a Skagen Funds conference.

"But given the borrowing has already happened and where you are right now the household debt issue is only made worse if you raise interest rates. It’s only made worse if you allow the economy to slide in deflation, so at this point what you want is an expansionary monetary policy to offset the risks of a housing decline or of a debt problem".

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