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

16 Pages Posted: 31 Jan 2012  

Lars E. O. Svensson

Stockholm School of Economics; Stockholm University - Institute for International Economic Studies (IIES); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: February 2012

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 RiksbankĀ’s balance sheet.

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

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

Suggested Citation

Svensson, Lars E. O., Central-Banking Challenges for the Riksbank: Monetary Policy, Financial-Stability Policy and Asset Management (February 2012). CEPR Discussion Paper No. DP8789. Available at SSRN: https://ssrn.com/abstract=1995973

Lars E.O. Svensson (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

HOME PAGE: http://larseosvensson.se

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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