Central-banking challenges for the Riksbank: Monetary policy, financial-stability policy and asset management
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.
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- Douglas W. Diamond & Raghuram G. Rajan, 2012.
"Illiquid Banks, Financial Stability, and Interest Rate Policy,"
Journal of Political Economy,
University of Chicago Press, vol. 120(3), pages 552-591.
- Douglas W. Diamond & Raghuram Rajan, 2011. "Illiquid Banks, Financial Stability, and Interest Rate Policy," NBER Working Papers 16994, National Bureau of Economic Research, Inc.
- Lars E. O. Svensson, 2011. "Practical Monetary Policy: Examples from Sweden and the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 289-352.
- Lars E.O. Svensson, 2012. "Practical Monetary Policy: Examples from Sweden and the United States," NBER Working Papers 17823, National Bureau of Economic Research, Inc.
- Borio, Claudio & Zhu, Haibin, 2012. "Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism?," Journal of Financial Stability, Elsevier, vol. 8(4), pages 236-251.
- Claudio Borio & Haibin Zhu, 2008. "Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?," BIS Working Papers 268, Bank for International Settlements.
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