Inflation Targeting and "Leaning against the Wind"
by Lars E.O. Svensson
Stockholm University and SIFR
Should inflation targeting involve some leaning against
the wind? Sweden provides a case study, since the Riksbank
has been leaning against the wind since 2010, stating concerns
about risks associated with the household debt-to-income
ratio. The cost of this policy in terms of low inflation and high
unemployment is high. According to the Riksbank’s own analysis,
the policy rate effect on household indebtedness is very
small, and any effect on risks associated with household debt
is miniscule. Indeed, much lower inflation than expected has
increased households’ debt burden and, if anything, increased
JEL Codes: E52, E58, G21.
Full article (PDF, 12 pages, 642 kb)