Lars E O Svensson: Monetary policy, debt and unemployment
Speech by Prof Lars E O Svensson, Deputy Governor of the Sveriges Riksbank, at a
meeting at SNS - Centre for Business and Policy Studies, Stockholm, 14 November 2012.
* * *
I would like to thank Karolina Ekholm, Kerstin Hallsten, Per Jansson, Christina Nyman, Ulf Söderström and
Anders Vredin for valuable discussions and comments. Mikael Apel, Gabriela Guibourg and Staffan Viotti have
contributed to this speech. The views expressed are my own, and are not necessarily shared by the other
members of the Executive Board or by other employees of the Riksbank.
It can scarcely have escaped the attention of those who follow monetary policy in Sweden
that the members of the Executive Board have held differing opinions for some time now.
Most people have probably also noted that a minority of the Executive Board members -
consisting of my colleague Karolina Ekholm and myself, in case anyone was not aware of
this - has advocated a more expansionary monetary policy than the one that has been
conducted and that the Riksbank intends to conduct in accordance with the repo-rate path
advocated by the majority during the coming period.
However, I am not as convinced that everyone has a clear idea of exactly what the
differences of opinion entail. Many people have recently criticised the Riksbank's
communication for being unclear, with some claiming that it has sometimes been difficult to
understand exactly why some decisions have been taken and why they have been judged to
be better than the alternatives.1
What I intend to do here today is to provide my view of where the main divisions are and to
describe how I came to the conclusions that I hold. I believe and hope that this review of the
arguments can straighten out some potential questions and that it will form a good basis for
continued discussions.
Differences in views regarding monetary policy and what it can achieve
Let me start by pointing out that lack of agreement among a monetary policy committee is
not a problem in itself. The actual purpose of having a group of individuals decide on
monetary policy is to create the right conditions for better decisions; it is namely so that
groups tend to make better decisions than individual decision-makers. This is partly because
the members' experiences and skills are pooled and partly because the group acts as an
insurance against the particular preferences of one individual being able to govern monetary
policy; it means there are "checks and balances". The fact that different members make
slightly different assessments and reach different conclusions is thus not so remarkable.
However, in the case of the Riksbank, the differences between the minority and the majority
have been so great and so persistent that it has become evident that they are not merely
temporary differences in, for instance, the assessment of economic developments. It rather
seems to be a case of more profound differences in the ways of regarding monetary policy
and what it can achieve. This need not necessarily be a problem, either. But it does require,
at least, that a thorough analysis is made of the differences and that one attempts to
evaluate, as far as possible, both points of view.
The arguments in favour of a higher policy rate
So how has the policy conducted by the Riksbank in recent years been justified? Why hasn't
the Executive Board wanted to conduct the more expansionary policy advocated by the
minority? Such a policy would have had better target attainment in terms of inflation and
unemployment, with higher inflation closer to the target and lower unemployment closer to a
long-run sustainable rate. My view is that the arguments have not been particularly clear, at
least earlier on, and that the stated motives have varied.2 Recently, however, the arguments
appear to have converged somewhat. The main arguments against a more expansionary
policy that have been put forward lately are that this type of policy would be too risky, given
the size of household debt.3 Let me therefore use this argument as a starting point for my
reasoning.
The discussion among the Executive Board members to a large extent reflects a broader
international debate on the relationship between monetary policy and financial stability, on
whether household debt is too high and, if so, whether monetary policy should be used to try
to limit indebtedness - although the Swedish debate does contain a number of specific
characteristics. In brief, one can say that those who believe the repo rate should be held
extra high appear to think as follows.4 If the interest rate is too low, households take on too
much debt. A large share of the loans households take on are used to buy housing, which
also pushes up housing prices. If indebtedness and house purchases are based on overly
optimistic calculations, there is a risk of a heavy fall in housing prices when the mood
changes, for some reason. If prices were to fall, many households would find themselves in a
situation where their assets have substantially declined in value, while their debt remains
unchanged. They may then want to pay off some of their debt to come down to a more
suitable level. This means they will prioritise saving over consumption. Demand in the
economy will then decline and unemployment will increase. During this process, the banks
may suffer loan losses that in a worst case scenario could become so great that the banks
fail or need assistance. This would threaten financial stability.
By holding the repo rate higher, they say that the central bank can reduce the risk of this
happening. While a higher interest rate means that demand is lower and unemployment
higher than would otherwise have been the case, and that inflation may undershoot the
target, this "insurance premium" may be worth paying if it means that one can avoid a much
worse outcome in the future. This would appear to be the reasoning pursued.
This chain of reasoning may appear fairly intuitive. But it contains at least a couple of critical
statements that require closer examination. The first statement is that the level of household
debt in Sweden today entails sufficiently large risks that it needs to be addressed. The
second is that a higher repo rate could tangibly reduce these risks and that the lower risk is
worth the lower inflation and higher unemployment caused by the higher repo rate. That is,
the insurance premium in terms of lower inflation and higher unemployment is worth paying.
There is also a third statement implied, that is, that there is no better instrument available,
with greater or the same effect on the risks and less effect on inflation and unemployment.
Let me examine these statements more closely, starting with the second and third ones.
The repo rate is not a suitable instrument
Regardless of whether or not household debt is currently considered to entail major risks, it is
important to discuss what instruments are appropriate to use to limit these risks, if necessary.
An important question right now, as opinions are divided with regard to the risks entailed in
household indebtedness, is whether the repo rate and monetary policy are appropriate
instruments for limiting potential risks or whether there are other instruments available that
would work better.
Housing prices and indebtedness are closely related - household debt mainly consists of
mortgages, and mortgages have a stable relationship to housing prices. An important
question is therefore how monetary policy affects housing prices. There is considerable
research in this field that has used different approaches and data from different countries and
periods. While there is some variation in the results, the typical result - which was also
obtained in the Riksbank's own inquiry into the risks in the housing market5 - is that
monetary policy has little effect on housing prices. A policy rate that is one percentage point
higher, gives housing prices that are only around 3 per cent lower in 2-3 years. This means
that one has to adjust the interest rate drastically to be able to affect housing prices and thus
indirectly household indebtedness. This in turn has very negative effects in the form of higher
unemployment and lower inflation. Reducing housing prices in Sweden (or preventing them
from increasing further) by 10 per cent would appear to need such a large increase in the
repo rate that GDP would fall by around 6 percentage points and unemployment would
increase by roughly 3 percentage points (150,000 people).6 Using monetary policy and
increasing the policy rate to push down housing prices thus has very high real economic
costs - the insurance premium one has to pay in the form of increased unemployment is thus
unreasonably high.
As a comparison with the insurance premium of 6 per cent of GDP in the above example, it
can be said that during the 1990s crisis GDP fell from the peak prior to the crisis in the third
quarter of 1990 to the trough in the first quarter of 1993 by around 5 per cent. During the
crisis 2008-2009, GDP fell from a peak prior to the crisis in the fourth quarter of 2007 to a
trough in the first quarter of 2009 by around 7.5 per cent. These falls are thus in the same
magnitude as the insurance premium. If the premium and the damage are about the same
size, is it a sensible insurance policy?
It is actually possible that in certain special situations effects may arise from relatively small
increases in the interest rate, when combined with words of warning from the central bank
and financial supervisory authorities. As Charles Bean, deputy governor of the Bank of
England, said in his paper presented at the Jackson Hole conference in 2010: "[T]here may
be times when a mixture of words and modest interest rate action can be effective in cooling
excessive market exuberance[.]"7 However, as far as I know, no such effect from limited
interest rate increases has been actually proved. Moreover, there is hardly anyone who
would claim that the Swedish housing and mortgage market is characterised by "excessive
market exuberance". As far as I know, no one has referred to any indicators of exaggerated
and unrealistic optimism regarding current developments in housing prices. In his paper,
Bean reaches the same conclusion that is supported today by extensive research and
practical experience: "[G]enerally speaking, monetary policy seems too weak an instrument
reliably to moderate a credit/asset-price boom without inflicting unacceptable collateral
damage on activity. Instead, with an additional objective of managing credit growth and asset
prices in order to avoid financial instability, one really wants another instrument that acts
more directly on the source of the problem."8
Given that the policy rate has such small effects on housing prices and such large effects on
inflation and unemployment, it quite simply does not appear possible to use monetary policy
and the policy rate to limit household debt at present, without clear prejudice to the mandate
to maintain price stability and attain the highest sustainable rate of employment.9
Monetary policy can hardly affect real housing prices and loan-to-value ratios in the
long run
Another important issue is whether monetary policy can affect real housing prices and
loanto-value ratios in the long run and thus affect household debt. A fundamental and
generallyaccepted insight in modern macroeconomics is that monetary policy cannot affect real
variables such as production, employment, unemployment, in the long run.10
Monetary policy
can only affect nominal variables in the long run, for instance, prices, inflation and the
exchange rate. According to the same generally-accepted insight, monetary policy cannot
affect real interest rates and real asset prices in the long run. Nor can monetary policy affect
the size of the housing stock and its real value in the long run, nor the way it is funded by
means of borrowing and own capital. This is instead determined by by real and structural
conditions in the economy, including the functioning of the housing and mortgage markets
and the housing and tax policies conducted. Monetary policy can only affect real variables
during a limited period of time and means that only for a limited period they can deviate from
their long-run sustainable paths of development. As I mentioned earlier, monetary policy has
very little effect on housing prices and debt even in the short run.
People sometimes talk about the "long-run effects of today's monetary policy" on household
debt, but according to this reasoning, monetary policy has no long-run effect on household
debt.11 Monetary policy is stabilisation policy, not structural policy. Influencing household debt
in the long run thus requires structural policy, such as fiscal, tax and housing policy, as well
as financial stability policy, so-called macroprudential policy.
A task for macroprudential policy
The large negative effects on the economy as a whole mean that it is hardly possible at
present to use the policy rate and monetary policy to influence housing prices and household
indebtedness without prejudice to the mandate of price stability and highest sustainable
employment. It is better to use other, more direct means, which do not entail such large real
8
Bernanke (2010, 2011) reaches the same conclusion. Bernanke (2010, Slide 9) also shows that for
20 countries the relationship between how expansionary monetary policy is (measured as deviations from a
Taylor rule) and how house prices have developed is very weak, not statistically significant, and only explains
5 per cent of the variability in the increase in housing prices between the countries.
9
maintain price
According to the Sveriges Riksbank Act, "[t]he objective for monetary policy is to stability",
According to Government Bill 1997/98:40, "[a]s an authority under the Riksdag, the Riksbank, without
prejudice to the price stability market, should furthermore support the goals of general economic policy with a
high
view to maintaining a sustainable rate of growth and employment". (My italics.) I interprete "high
employment" as "highest sustainable employment".
10
One exception is when average inflation deviates from average inflation expectations for a long period of time.
Then average inflation below inflation expectations will increase average unemployment, see Svensson
(2012a).
11
According to Englund's (2011) article on the development of housing prices and explanations for this in the
Riksbank's inquiry into the risks in the housing markets, monetary policy plays no role here and real housing
prices are explained by real quantities. In the general equilibrium model for housing prices calculated using
Swedish data by Walentin and Sellin (2010) and which is also used by Claussen, Jonsson and Lagerwall
(2011), monetary policy has no long-run effect on housing prices or household debt.
economic costs. Examples of such measures include the loan-to-value cap, regulations on
deductions for mortgage rates, taxes, capital adequacy requirements, risk weights and so on.
Keeping an eye on risks related to household debt is a task for the policy area known as
macroprudential policy. As yet, there is no fully-developed framework for macroprudential
policy in Sweden. The financial crisis committee, which was appointed by the Government, is
currently looking into the design of such a framework - for instance, which tools should be
used and by whom. However, some measures belonging to the macroprudential toolbox have
nevertheless been implemented and apparently to good effect - here I am thinking of
Finansinspektionen's loan-to-value cap. According to the report on the housing market that
Finansinspektionen published in March 2012, the loan-to-value cap has had the intended effect
and the loan-to-value ratio for new mortgages is now falling for the first time for many years.
A short-cut in the reasoning
Monetary policy thus has relatively little effect on housing prices and household debt, but
relatively large effect on inflation and unemployment. Moreover, there are other, better
instruments than the repo rate available. One can therefore claim that the first statement
above, that household debt in Sweden today entails sufficiently large risks to need to be
addressed, does not have any significance for monetary policy. It is not monetary policy that
should be used if household debt needs to be addressed. But let me nevertheless also
discuss the first statement.
How should we regard household debt in Sweden at present? This is where I perceive that
those who advocate a higher repo rate because of household debt tend to take a short cut in
their reasoning. They usually refer to the financial crisis and developments in other countries
as a warning example of how badly things can go if one allows debt to build up and housing
prices to rise. They then express concern for Swedish household sector debt and say -
without mentioning the research that has shown that monetary policy has very little effect on
housing prices and debt - that a higher repo rate is necessary to prevent developments
similar to those in the countries that were hit hardest in the financial crisis. Sometimes one
adds an argument that basically states that even if we cannot see any immediate threats in
Sweden at present, this does not mean that they do not exist. In many of the countries where
things have gone very badly, people did not see the risks, they say, so not seeing a risk
doesn't mean there isn't one - a variation of the argument that "this time is (not) different".12
Let me emphasise that I certainly do not mean that risks linked to high indebtedness should
be ignored. In the light of events in recent years I find it difficult to imagine that anyone would
fail to agree that governments, legislators and financial supervisory authorities should do
everything in their power to prevent and limit the consequences of future crises. But I
nevertheless feel that the argument that household debt entails major risks and needs to be
addressed must be substantiated in a sufficiently convincing manner.
After all, there is always a small risk that things can go badly wrong. If one is content to refer
to this, one could justify more or less any type of policy. What one must try to make
sufficiently credible is the risk that things will go badly wrong is sufficiently large that it needs
to be addressed. One must also be able to show that the proposed changes have sufficient
effect on the risks in relation to the costs of the measures taken.
It is not enough, in my opinion, to express concern for high indebtedness and refer to the
financial crisis. One must, as far as possible, make an assessment of households' entire
financial situation, including their balance sheets with both assets and liabilities, as well as their
debt-servicing ability, on the basis of the facts and analyses at hand. It is important to try to
answer questions such as "What signs point to households having excessive debt?", "To what
extent can housing prices be explained by economic and structural factors?" and "How
vulnerable are Swedish banks and households?" All in all, it is important to assess whether
household debt is sustainable and whether households have sufficient resilience to shocks in
the form of higher interest rates, a fall in housing prices and increased unemployment, and
what consequences such shocks could have for the banks and for the macro economy.
How great are the risks from household debt?
So what do the available facts and surveys tell us? With regard to the sustainability of
housing prices, the Riksbank's own inquiry into the risks in the housing market, which I
mentioned earlier, indicates for example that housing prices can essentially be explained by
what are usually termed fundamentals, namely growth in disposable incomes, a long-run
trend towards falling real mortgage rates, the abolition of wealth and property taxes, a ceiling
for municipal property taxes and little new construction. There are no signs that Swedish
houses are overvalued - that there is a housing bubble. As housing prices are due to
fundamentals, these must change for housing prices to change, and changes in
fundamentals normally occur fairly slowly. This reduces the risk of large falls in housing
prices.13 If fundamentals are at sustainable levels, housing prices will also be sustainable.
The increase in housing prices now appears to have slowed down and they are roughly at
the same levels as at the end of 2010 (Figure 1).
Figure 1
Prices of single-family dwellings and tenant-owned apartments
Index January 2008 = 100
130 130
Valueguard (single-family house)
Mäklarstatistik (single-family house)
120 120
Valueguard (tenant-owned apartment)
Mäklarstatistik (tenant-owned apartment)
110 110
100 100
90 90
80 80
70 70
60 60
05 07 09 11
Sources: Mäklarstatistik and Valueguard
Is household indebtedness sustainable? Opinions on this are divided, but allow me to begin
by pointing out here that households have very strong balance sheets. Household debt in
relation to disposable income, the debt ratio, has increased over several years and the debt
ratio is now around 170 per cent of disposable income (see Figure 2). However, the debt
ratio has stopped growing as of 2011 and the Riksbank's forecast for the coming three years
is for an unchanged debt ratio. Households have total assets, excluding collective pension
insurances, that have grown in line with their debt and they are approximately 510 per cent of
disposable incomes, that is, three times as large as their debt. Households' gross solvency,
net assets (own capital) in relation to total assets, is thus approximately 70 per cent. The
relationship between household debt and financial and real assets (the latter consisting of
own homes, second homes and tenant-owned apartments) has been relatively stable and
without a trend for several decades. Households' increased debt in relation to disposable
incomes has thus been accompanied by a corresponding increase in net wealth in relation to
disposable income. Households also have collective pension claims of more than 120 per
cent of their disposable income.
Figure 2
Households' assets and debt in relation to disposable income
Per cent
600 12
Real assets (own home,
tenantowned apartments, second homes)
Total assets (excluding collective
pensions)
Debt
500 9
Total own saving, excluding
collective charges (right scale)
400 6
300 3
200 0
100 -3
0 -6
81 85 89 93 97 01 05 09 13
Sources: Statistics Sweden and the Riksbank
Households' "leverage ratio", net wealth over total assets, compared with the relationship
between capital and total assets among the banks and some large Swedish listed companies
in 2011 (Figure 3). Households thus have a leverage ratio comparable with the best-
capitalised listed companies and much greater than the banks' very small ratios between
capital and total assets.14 Swedish households are also well capitalised from an international
perspective.15
Households' interest payments on their debt is not high from an historical perspective. At
present, it is just over 4 per cent of disposable income. With a high mortgage rate of 7 per
cent before tax, the mortgage rate after tax will be around 5 per cent. With an interest rate
after tax of 5 per cent, the interest payment will be 5 per cent of 170 per cent, which is
8.5 per cent of disposable income. This is not particularly high, especially in comparison with
the cost of renting a home, which can be on average 20 per cent of disposable income.
When assessing whether households' debt ratio of 170 per cent in relation to disposable
income is sustainable in the long run, however, the most relevant indicator is the households'
net debt service, that is, the debt service households must pay to keep the debt ratio
constant. Then it is necessary to take into account the fact that disposable income increases
over time. With a disposable income that can be expected to grow by 4 per cent in the long
run, therefore, 4 per cent should be deducted from the mortgage rate before tax of 5 per
cent. There then remains only 1 per cent of the debt of 170 per cent, that is, the net debt
service required in the long run to keep the debt ratio constant is only 1.7 per cent of
disposable income.16 With this reasoning, a debt ratio of 170 per cent is sustainable with a
considerable margin.
Figure 3
Capital over assets for households, some large listed companies
and Swedish banks
Per cent
80
70
60
50
40
30
20
10
0
Sources: Dagens Industri (capital/assets 2011 for listed companies and Swedish banks) and
the Riksbank (household net wealth/assets).
The household debt situation is also analysed in Finansinpektionen's (the Swedish financial
supervisory authority) report, The Swedish Mortgage Market. Finansinspektionen observes in
this report that the loan-to-value cap has had an effect. Households' loan-to-value ratios for
new loans fell in 2011, and the percentage of houses with a loan-to-value ratio of more than
85 per cent has halved since 2009, to just under nine per cent. The banks make stringent
credit assessments of borrowers using a "left-to-live-on" calculation with a high mortgage
rate.17 Stress tests also show that most households that have taken out a new mortgage and
which should be the most vulnerable, have a good debt-servicing ability and are resilient to
increases in interest rates, falls in housing prices and increases in unemployment.18 In
contrast to what was the case during the 1990s crisis, however, large interest rate increases
probably will not coincide with high unemployment. Finansinspektionen's conclusion is that
"Only a limited portion of the households are affected even when simultaneously applying
assumptions of sharp drops in house prices and sharp rises in unemployment, which
indicates that Swedish mortgages are currently not a threat to financial stability." Moreover,
this resilience has also been tested in real time. The financial crisis 2008-2009 hit
households in Sweden through a large fall in GDP, a rapid increase in unemployment and
housing prices that fell by 10-20 per cent depending on which statistics you use (Figure 1).
The euro crisis has recently entailed a new stress test. Swedish households and mortgage
borrowers have also passed this test with flying colours.
The Riksbank's inquiry into the risks in the housing market also observed that resilience in
the Swedish mortgage market was good. It estimated the effects on the economy of a fall in
housing prices of 20 per cent and concluded that the effects would be relatively small,
particularly if they are counteracted by a more expansionary monetary policy.19
One important indicator of sustainability and resilience is the household saving ratio.
Swedish households' saving ratio is now historically high, while it was very low prior to the
1990s crisis, minus 3 per cent at its lowest (Figure 2). A high saving ratio means that
households are increasing their real and financial assets and that their consumption is not
funded by loans. A low saving ratio and a loan-funded consumption boom, which was the
case in Sweden prior to the 1990s crisis and in the United States prior to the most recent
crisis, is on the other hand problematic and not sustainable. Studies indicate that the
probability of suffering a large fall in housing prices almost doubles if the saving ratio is
unusually low.20
An important difference between Sweden and countries that have experienced severe falls in
housing prices, such as Ireland, Spain and the United States, is that the latter have also had
a construction boom (see Figure 4). This gradually led to an over-production of housing,
which in turn contributed to housing prices falling even more once the market began to
weaken. A construction boom appears to be an important - perhaps necessary - ingredient
in the recipe for crisis in the property sector.
17
A "left-to-live-on" calculation estimates the difference between disposable income and housing and
maintenance costs, possible alimony payments and a standard for households' cost of living. The banks take
into account the borrower's whole loan situation and assume on average a mortgage rate of around 8 per cent
when calculating interest costs and assume some amortisation will be made. Finansinspektionen (2012).
18
A stress test of housing prices in the report shows that a large price fall of 40 per cent and an increase in
unemployment of 20 percentage points without unemployment benefit means that only 10 per cent of the new
mortgage borrowers have a loan-to-value ratio of over 100 per cent and a deficit in a "left-to-live-on"
calculation. (Finansinspektionen 2012, Figure 17).
19
Claussen, Jonsson and Lagerwall (2011). In the minutes of the monetary policy meeting held in June 2010
(Sveriges Riksbank 2010), I show that a more expansionary monetary policy than is assumed in Claussen,
Jonsson and Lagerwall (2011) can almost neutralise the effects on inflation and GDP of a fall in house prices,
even taking into account the zero lower bound for the repo rate.
20
Armelius and Dillén (2011).
Another important difference between the current situation in Sweden and the situation in
Sweden prior to the 1990s crisis and in the Baltic countries, Ireland, Portugal and Spain prior
to the most recent crisis, is that the economies in the latter cases were clearly overheated
with unsustainable growth and price and wage inflation. One can scarcely claim that the
Swedish economy is overheated today or even that the construction and housing sectors are
overheated. As I said, housing prices appear to have levelled off (Figure 1).
Figure 4
Housing investment
Per cent of GDP
Sources: Bureau of Economic Analysis, Central Statistics Office Ireland, Federal Statistical
Office, Germany, National Statistics Institute, Spain and Statistics Sweden
So how is the lenders', that is the banks', resilience? A lack of financial strength in the banks
created major problems in Sweden during the 1990s crisis and is also causing problems for
several countries in Europe now. But according to the Riksbank's own Financial Stability
Reports, the banking system in Sweden is currently well-capitalised and functioning
smoothly.21 Even if we were thus to see a fall in housing prices, which, contrary to
expectations, led to problems in the housing sector as a whole, there is only a small risk that
this in turn would lead to problems for the banks. Here it is worth noting that during the crisis
in the 1990s, when housing prices fell dramatically, it was not the loans to households that
caused major loan losses, but the loans on commercial property.
The conclusion that I reach overall with regard to the question of risks linked to households'
current debt is that it does not appear possible to prove that they are a threat to financial
stability or to the macro economy. But this is not the main reason why I say that monetary
policy should not be used to limit household debt - the main reason is that monetary policy
and the policy rate are unsuitable for this purpose.
Why more expansionary monetary policy?
A well-balanced monetary policy is normally a question of finding an appropriate balance
between stabilising inflation around 2 per cent and stabilising the real economy around a
sustainable path. The real-economy indicator that in my opinion is the most appropriate to
focus on is unemployment.22 Monetary policy should thus try to stabilise unemployment around
the rate that is assessed as sustainable in the long run. How well are the targets met?
Inflation is currently very low. In October, CPI inflation was 0.4 per cent. According to the
Riksbank's forecasts it will be below one per cent as an annual average in both 2012 and
2013. However, CPI inflation is affected by the Riksbank's repo rate changes and the cuts in
recent years have contributed to the low CPI inflation. But CPIF inflation, which gives a better
picture of inflationary pressures in periods of large interest rate adjustments, will be around
one per cent as an annual average in 2012 and 2013. Thus, inflation is far below the target,
whichever measure one uses. According to the National Institute of Economic Research's
assessment of the Swedish economy in August 2012, both CPI and CPIF inflation will be well
below the target in both 2013 and 2014, despite the forecasts assuming a much lower
reporate path than the Riksbank's.23 Sweden has the lowest inflation in the European Union.
What about developments in the real economy? The outlook is poorer than before for both
the world economy and the Swedish economy. Swedish exports