Central-Banking Challenges for the Riksbank: Monetary Policy, Financial-Stability Policy and Asset Management

Abstract:     
The Riksbank faces challenges with regard to each of its three core functions, conducting monetary policy with the objective of stabilising inflation around the inflation target and resource utilisation around a sustainable level, promoting a safe and efficient payment system and thereby conducting a policy for financial stability, and managing its financial assets to attain a good risk-adjusted rate of return without prejudice to the first two core functions. I conclude that the challenges are best met by focusing monetary policy exclusively on stabilising inflation around the inflation target and resource utilisation around a sustainable level and not treating the policy rate, housing prices or household debt as separate explicit or implicit target variables, by not confusing monetary policy with financial-stability policy but treating them as separate policies, and by eliminating the large unnecessary currency risk in the Riksbank’s balance sheet.

Number of Pages in PDF File: 16

Keywords: central bank asset management, macroprudential policy, monetary policy

JEL Classification: E42, E52, E58, G18, G28

working papers series