Working Paper: CEPR ID: DP1103
Authors: Lars E. O. Svensson
Abstract: The paper gives a brief account of the Swedish experience of an inflation target in a floating exchange rate regime; identifies, documents and discusses the current problems in Swedish monetary policy and their origins; suggests what can be done to remedy the problems; and draws some general conclusions. The two main current problems are the lack of credibility of the target and the significant risk that the target will be missed. The reasons for the lack of credibility include the fiscal situation, the institutional set-up of monetary policy, the political division about monetary policy, and the insufficient transparency of and commitment to the current inflation-targeting policy.
Keywords: monetary policy; floating exchange rates
JEL Codes: E32; F33; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal deficit (H68) | Inflation expectations (E31) |
| Inflation expectations (E31) | Credibility of inflation target (E52) |
| Fiscal deficit (H68) | Credibility of inflation target (E52) |
| Political division about monetary policy (E59) | Credibility of inflation target (E52) |
| Institutional setup of Riksbank (E58) | Credibility of inflation target (E52) |