Svensson is disgusted with the Riksbank

In his blog he writes “Deflation in Sweden: Questions and answers”:

Sweden has deflation, that is, negative inflation…What has caused the deflation, what are its consequences, could Sweden end up in a similar situation as Japan, and what can be done about the problem?

What has caused the deflation?

The deflation has been caused by the Riksbank´s tight monetary policy since the summer of 2010. The majority of the executive board chose in the summer of 2010 to start increasing the policy rate, which was then at 0.25 percent. The policy rate was increased at steady and fast rate to 2 percent in the summer of 2011. The increases started, in spite of the forecast in the summer of 2010 for inflation the next few years lying below the inflation target and the forecast for unemployment lying far above a long-run sustainable rate.

My summary of the Riksbank´s monetary policy is damning to the policymakers (see the charts)

Up to mid-2010 they were doing the ‘right thing’. In fact, they appeared to follow in the footsteps of Australia and in any case were much more proactive than the Fed, BoE or ECB. These were setting a ‘bad example’ by allowing NGDP to remain comfortably below trend and showing no desire to “try for the gold”. Unfortunately, Sweden decided to follow their example!