Even in Sweden, where 4 years ago the Riksbank decided there was “too much debt” and raised rates to “calm people down”. That, as we know, ended in grief and with the head honcho being outvoted (first time that happens) in the last policy committee meeting, when the policy rate was lowered by 50 basis points to 0.25%.
But there are those that don´t give up. As Lars Svensson writes:
Should the Riksbank have financial stability as an objective besides price stability? According to an op-ed by Carl B. Hamilton in Dagens Industri on July 17, the answer is yes. According to Hamilton, this is even a practice already established by the Riksdag (the Swedish parliament). The Riksbank Act needs to be amended, but only as a formality.
But Hamilton forgets that the Riksbank has no effective policy instruments to affect financial stability, except in connection with the management of financial crises. He also forgets that the government with the support of seven parties in the Riksdag – including Folkpartiet (the Liberal Party) – has decided that the Riksbank will not receive any such instruments. Without the instruments, the Riksbank neither can nor should have financial stability as an objective.
The fact is that Sweden has done a pretty bad job. It´s mandate calls for 2% inflation, nevertheless, since 1994 inflation has averaged only 1.3% per year. And the average is the same including or excluding the post crisis (2008) years!
Pre-crisis, in countries such as the US or Canada, among others, you couldn´t distinguish from the data if the central bank was targeting inflation, the price level or NGDP. All those were observationally equivalent. I´ve shown previously that the only “dog that barked” was NGDP level targeting.
In Sweden, on the other hand, inflation was far below target on average and so was the price level (consistent with 2% inflation). The charts below illustrate.
Nevertheless, completely unwittingly, NGDP remained close to a level trend until the crisis hit. And despite inflation (on average) remaining below target, NGDP was climbing back to the previous trend rate. That is, until 2010 when the Riksbank decided it was time to restrain people´s (and house price) exuberance!
So Sweden provides a good example (evidence?) that what really matters for the central bank is to provide NOMINAL stability. When it does so things work out, even if inflation (or the price level) remains below “target”.