SPEECH
SVERIGES RIKSBANK
DATE:
7 October 2020
SE-103 37 Stockholm
SPEAKER: (Brunkebergstorg 11)
First Deputy Governor Cecilia Skingsley
VENUE:
Nordea
Tel +46 8 787 00 00
Fax +46 8 21 05 31
registratorn@riksbank.se
www.riksbank.se
Post-pandemic monetary policy and the
future of the interest rate as a policy
tool*
The coronavirus pandemic has had a dramatic impact on the economic playing
field. For the second time in a little more than a decade, governments and central
banks around the world have needed to take powerful measures to alleviate, as
far as possible, a recession and try to prevent lasting damage to the economy.
One result of this has been that an increasing number of central banks now find
themselves in a situation where inflation is undershooting the target and the
policy rate is at or close to its lower bound. In some economies, such as the euro area
and Sweden, the policy rates have been low for a long time. But the pandemic has
also meant that, for instance, the US Federal Reserve, which as recently as just
over a year ago had a policy rate of more than 2 per cent, has had to quickly lower
it to basically 0 per cent. Thus, one could say that the monetary policy playing
field has become more even (see Figure 1).
Another observation is that central banks' inflation forecasts now tend to lie
below their respective targets, not just in the short term, but also at the end of the
forecast period. This is the case with the Riksbank's and the ECB's forecasts, but
also the Federal Reserve's forecasts are below the target for two years ahead, not
reaching target level until 2023 (see Figure 2).1 It appears to be the case that
central banks are increasingly making the assessment that they will have difficulty
conducting a sufficiently expansionary policy to bring inflation back on target as
quickly as usual.
However, this is not so strange. It is explained primarily by two interacting factors.
One is that the pandemic has resulted in an unusually rapid and large fall in
demand. It is hardly surprising that this has the consequence that inflation is falling
so far that it may be difficult to get it to rise quickly enough to reach the target
level in a couple of years' time. The other factor is that the already low interest
rates around the world make it difficult for the central banks to cut their policy
rates as far as would be needed to stimulate demand to the necessary extent. This
was a problem that was much discussed even prior to the pandemic. For instance,
I argued in a speech in 2016 that the situation we are in now, with an inflation
rate that we don't expect to quite reach the target even at the end of the forecast
period, was a possibility in the coming years.2 There was a similar debate in the
United States, too, where the policy rate was significantly higher than in Sweden.3
I would like to make a brief digression about this, as it is essential to my continued
reasoning.
Low neutral rate hampers expansionary policy
Interest rates in Sweden and abroad have thus reached historically low levels. This
is essentially due to structural factors, which imply that globally there is a greater
propensity to save than to invest.4 This in turn has meant that global real interest
rates, that is, interest rates excluding inflation, have fallen in recent decades (see
Figure 3). In addition, nominal interest rates around the world have also fallen due
to many countries introducing inflation targeting. The nominal interest rate
includes compensation for inflation.
The fact that interest rates have fallen, and are now at historically low levels,
means that the level where the central banks' policy rates are "neutral"- that is,
neither expansionary nor contractionary - has also developed in a similar manner.
The relationship between the neutral interest rate and monetary policy can be
illustrated with the aid of Figure 4. The neutral interest rate is represented by the
broken line. When central banks conduct monetary policy via the policy rate, they
change it in the way described in the solid line. An interest rate that is lower than
the neutral one stimulates demand and inflation, while an interest rate that is
higher than the neutral one has the opposite effect. Central banks cannot set
interest rates independently of the neutral interest rate, but must take it into
account. As the neutral interest rate is currently at a historically low level, the
central bank's policy rate needs to be very low to have an expansionary effect. This
has meant that policy rates in many countries today are at or close to the lower
bound, and would have been even lower if this had been considered possible. In
other words, monetary policy is currently being squeezed from two sides - the
pandemic and fall in demand that is subduing inflation on the one hand, and the
conditions that make it difficult to cut the rate to counteract this on the other.
What does an inflation forecast below the target
entail?
So how should one interpret the fact that the Riksbank is forecasting an inflation
rate below the target? One interpretation has been that "the Riksbank has
abandoned the inflation target". If this merely means that we accept that inflation will
not quite reach 2 per cent within the coming years, then it is of course true - this
is after all what we are forecasting. However, I want to make it clear that it is
certainly not true that we have abandoned the target in a general sense and are
focusing on something else.
What worries me somewhat is that in some quarters the view seems to be that
the inflation target has become obsolete. The argument is that the inflation target
was useful for bringing down inflation from the overly high levels it was
fluctuating around earlier, but once we attained a low inflation rate, the target has no
further purpose and might as well be abandoned. However, the purpose of an
inflation target is not just to prevent high inflation, but also to ensure that inflation
does not become too low. Both parts are important to provide a positive
contribution to economic developments.
If one is to find something positive in the current situation, it is that it has brought
the international discussions to a head: Do central banks' monetary policy
frameworks need to be adapted to manage the challenges we are facing and, if so,
how? Many countries and central banks are now in the same boat. It is
increasingly clear that they share the same problem - the low neutral real interest rates
being the cause for concern - rather than some central banks been doing the right
thing and others not over the past decade. I would like to give my views on this.
Interest rate needed as monetary policy tool
One very important question is, as I see it: "How can we ensure that monetary
policy continues to have the scope to counteract recessions and increased
unemployment?", or perhaps more precisely, "How shall we prevent the scope to
counteract recessions declining from its current level?" I would like to begin to respond
by addressing three central sub-issues and relating them to the Swedish debate,
in particular the argument that the inflation target is obsolete:
 Is it useful if the central bank can counteract recessions with policy rate
cuts?
 Is it easier to counteract recessions if the interest rate is normally rather
high than if it is very low?
 Is the policy rate higher on average if inflation in general is relatively high
than if it is very low?
Is it useful if the central bank can counteract recessions with
policy rate cuts?
The answer to this question is perhaps obvious, but the question is nevertheless a
useful starting point. Most people would agree that a central bank plays an
important role in stabilising the economy and preventing unemployment from rising
too far when recessions occur. We have seen examples in the past decade or so of
powerful measures taken by central banks that have been necessary to prevent
unemployment from soaring.
I believe that most people would also agree that the interest rate is a good
monetary policy tool. Of course, the monetary policy toolbox also contains other tools,
but the interest rate is the most well-established one and the one we know most
about. I am fairly certain that most people would consider it an advantage if
central banks could continue using the interest rate as their man tool to stimulate the
economy, counteract unemployment and hold inflation low and stable.5
Is it easier to counteract recessions if the interest rate is
normally rather high than if it is very low?
With regard to the second question - "Is it easier to counteract recessions if the
interest rate is normally rather high than if it is very low?" - it is of course fairly
obvious that if the normal situation is that the rate can be cut from a level that is
not too low, this is preferable to the interest rate being low and there being little
scope to cut it. But what exactly do we mean by "normal"? This leads me to the
next question.
Is the policy rate higher on average if inflation in general is
relatively high than if it is very low?
As I have already mentioned, the interest rate consists, somewhat simplified, of a
real part and a part that is compensation for inflation.6 In a world with a very low
average inflation rate, interest rates in general - the normal situation - will be
lower than in a world where inflation is on average higher. As I just pointed out,
one reason why interest rates are lower now than during the 1980s, for instance,
is that inflation has fallen. A lower inflation rate was indeed what the introduction
of inflation targeting was meant to achieve. But it is not only a too high inflation
rate that is problematic, a too low inflation rate can cause problems as well.
Let us assume that inflation in one country is on average 2 per cent, while in
another it is on average 0 per cent - one can assume, for instance, that they have
different inflation targets. The interest rate in the first country will therefore be
on average 2 percentage points higher than that in the second country, as those
borrowing money do not need to pay any compensation for inflation if it is zero.
Let us now assume that a recession occurs in both countries, and the respective
central banks need to cut their policy rates. Let us also assume that real interest
rates are at record low levels, as is the case today, and that the neutral level of
the policy is therefore already low. The second country has less scope to cut its
policy rate than the first one. When the policy rate in the second country reaches
its lower bound, the first country still has 2 percentage points at its disposal. In
other words, it is not possible to make monetary policy as expansionary in the
country where inflation is on average zero, and it is therefore more difficult to
counteract the recession there (see Figure 5).7
Monetary policy scope to counteract recessions and maintain employment is of
course good in itself, but a higher average rate of inflation also reduces the risk of
a situation with lasting deflation, that is, a decrease in the general price level of
goods and services. Deflation is harmful in many ways. For instance, it increases
the real burden of debt, which may make borrowers reduce their consumption.
The reason for deflation is often a fall in demand in the economy, and this type of
mechanism can then further reinforce the downturn. If deflation becomes
entrenched, it also becomes even more difficult to use monetary policy to turn
developments around than if inflation was zero.8
Interest rate tool presupposes some inflation
So to summarise: I believe that most people would respond to the three questions
I raised with a yes, and the conclusion one then reaches is that it is good if central
banks can use the policy rate to counteract recessions and that this is easier to do
if there is some level of inflation in the economy. Thus, the aim of maintaining the
inflation target is not just about low and stable inflation being a good thing in
itself, it also provides a means of ensuring that the policy rate can be used as a
monetary policy tool.
It is worth noting that this has implications for the argument that the central bank
should not bother with inflation at all, but should focus on other things, such as
solely balancing economic activity or dampening financial cycles. Doing this
effectively requires using the interest rate and to use the interest rate we must have
some average inflation.
It may also be worth noting that there is an international debate that emphasises
that as the neutral interest rate is historically low, even an inflation target of 2 per
cent provides too little scope for monetary policy. The target, it is argued, should
therefore be higher.9 I do not intend to bring up this debate now, but focus on
how one can try to retain the scope that an inflation target of 2 per cent
nevertheless offers. Preventing this scope from shrinking further would appear, after
all, to be a more acute problem right now.
The way forward - communication difficult but
important
So what is the best direction to take from our current situation? I intend to divide
my response to this question into two parts: How I believe that one can act given
the monetary policy framework and target formulation we now have, and what
changes to the framework and target formulation might be conceivable. In the
latter case, I will discuss the changes in strategy and objective implemented by the
Federal Reserve, the US central bank, just over a month ago.
In the speech I held in 2016, I argued that it is extremely important to clarify for
households, companies and market participants that even if the forecast for
inflation undershoots the target for the entire forecast period, this does not mean that
the central bank has given up the inflation target. There is otherwise a risk that
inflation expectations would begin to fall and finally become stuck at a very low
level. This could lead to ending up as the economy in my earlier example, with an
average inflation rate of zero and major problems in using the interest rate as a
tool to counteract recessions and increased unemployment.
In my speech in 2016, I also pointed out that I was fairly optimistic about the
prospects of success in this respect. One parallel that I highlighted was the regime
shifts in the central banking world in the 1980s and 1990s, when ideas about
independent authorities with clear tasks and mandates for monetary policy became a
recipe for success in stabilising the development of inflation and boosting
confidence in monetary policy in a large number of countries. However, one
complicating circumstance that I did not take up then, was that it is easier to communicate
that high inflation is harmful than that very low inflation is. When inflation is high,
the problems are obvious to most people, especially if it is also fluctuating a lot.
The problems linked to low inflation can, as I have hopefully managed to put
across here, be just as serious, even though they are not noticed in the same way
under normal circumstances, but only during hard times. This makes greater
demands on our ability to communicate.
In my speech in 2016 I also didn't address how monetary policy and
communication of monetary policy should be formulated more explicitly in a situation where
inflation is not expected to reach the target during the forecast period, and there
is a risk that the long-term inflation expectations will fall and become entrenched
at a low level. We had not come that far then, but as many countries now find
themselves in a situation where this risk is a reality, it is a problem that the
world's central banks and governments need to deal with.
Continued expansionary policy with possible
modifications
So, if I return to the Riksbank, how do I think we should act more specifically -
what should be the plan from now onwards? With regard to communication of
the principal plan, we should, as I mentioned earlier, both be completely clear
that monetary policy is still aimed at the inflation target, and also continue
emphasising why it is important that the inflation target is some way above zero -
with the aid, for instance, of the three questions I mentioned earlier. Explaining
why a respectful distance to zero inflation and deflation is so important is not a
new element in our communication, but as it is more important than ever before
that there is a broad understanding of it in society, we need to increase our
efforts.
Of course the actual policy should in accordance with this remain expansionary,
with the tools that are at our disposal. Here today I have focused on the interest
rate, the actual and expected, and I do not intend to say very much about other
tools.10 These have without doubt been important in the situation that has arisen,
but my proposition is that the interest rate is preferable as the main monetary
policy tool.
More important role for fiscal policy
However, one circumstance that has become obvious in recent years is that fiscal
policy needs to play a greater role in stabilising the economy than has been the
case in recent decades. There has long been a tendency to consider it the task of
monetary policy and not fiscal policy to stabilise economic activity when the
exchange rate is floating. But the central banks' gradually declining room for
manoeuvre has contributed to a reconsideration of the role of fiscal policy in
stabilisation - monetary policy can no longer be "the only game in town", as for
instance former ECB Governor Mario Draghi has put it.11
One normally expresses it as fiscal policy shall help to parry economic downturns.
An interesting thought that I feel deserves greater consideration is whether fiscal
policy could play a more explicit role also with regard to attaining the inflation
target.12 After all, the inflation target in most countries has the support of the
political system. Thus, it is not merely the central bank's target, but society's target.
Fiscal policy will also function better if the inflation target can continue to be the
anchor in price-setting and wage formation. Given this, it does not appear entirely
unnatural for fiscal policy to support monetary policy in exceptional circumstances
with regard to maintaining confidence in the inflation target - and thereby
ensuring that the central bank's policy rate can continue to be an effective tool in the
future.
Conditioning of monetary policy a possible route?
An area that we as central bank have control over, and where we could possibly
become more effective, is our communication of future monetary policy.
Although we have been publishing a forecast for the repo rate for many years now,
we have to acknowledge that our forecasts during the past decade have
systematically overestimated how quickly the interest rate can be raised. We have not
been alone in this overestimation - the market forecasts have looked fairly similar
(Figure 6). They were better than the Riksbank's during the period 2011-2013, but
the pattern is essentially the same - substantial overestimates and inaccurate
forecasts. Given this, it is quite natural that the interest rate forecast as indicator
of the future repo rate has been devaluated somewhat.13
One idea that I am personally positive to, is to publish not merely an interest rate
forecast, but to supplement it with a promise to condition the policy on certain
developments in the economy.14 The conditioning that currently appears most
relevant is to make clear that the policy rate will be held at zero until inflation has
reached a certain level.
Usually, central banks begin raising the interest rate before inflation has reached
the target - start putting the brakes on in advance, so to speak. But the current
situation is different. One problem for the Riksbank and many other central banks
over the past decade has been that inflation has tended to undershoot the target.
If this were to continue to apply, there is a risk that inflation expectations in the
economy would fall, even long-term ones. As I have already described, this could
make it more difficult to stimulate the economy using the policy rate. This could,
in turn, mean that recessions become deeper, inflation and inflation expectations
fall further, and so on in a negative spiral. There is therefore good reason to
safeguard the symmetry of the inflation target.
Not raising the repo rate before inflation has reached the target is a way of not
putting the brakes on in advance. If one waits so long in raising the policy rate in
an economic upturn, it is likely that inflation will then overshoot the target for a
period of time. The way I see it, the Executive Board of the Riksbank has taken a
step in the direction of this kind of conditioning by opening up for inflation
overshooting the 2 per cent target before it is time to make monetary policy less
expansionary. For this type of strategy to function well, it must have the support of a
majority, and it will be particularly powerful if communicated by a unanimous
Executive Board.
Interesting change of strategy by the Federal Reserve
Safeguarding the symmetry of the inflation target, and thereby the inflation target
per se, appears to have been an important motive for the changes made by the
US central bank, the Federal Reserve, just over a month ago with regard to its
strategy and objectives.15 The changes were the first to be made since 2012, when
the inflation target was introduced, and the review that preceded the changes
was motivated by conditions since then having changed in three important
respects:
 The neutral interest rate has continued to fall and is currently at a record
low level.
 Inflation and inflation expectations have systematically undershot the
Fed's target of 2 per cent.
 Prior to the pandemic, unemployment in the United States had fallen to
the lowest level in 50 years without any tangible impact on inflation.
It is primarily two of the changes made by the Fed in its policy document that are
central to my discussion here today. Firstly, that monetary policy shall be aimed at
inflation overshooting 2 per cent for a period of time if inflation has previously
undershot 2 per cent. Earlier target deviations will thus be compensated for by
deviations in the other direction.16 This is new. In conventional inflation targeting,
deviations from the target are regarded as bygones, which do not need to be
compensated for.
In his speech at Jackson Hole in August, Chairman Jerome Powell called this a
"flexible form of average inflation targeting". What the Federal Reserve is
concerned about is the relationship I mentioned earlier, that is, that if inflation has
not reached up to the target level on average over a long period of time, this risks
sooner or later affecting the long-term inflation expectations in the economy.
They therefore want to make it clear that they are endeavouring to attain an
average inflation rate of 2 per cent - "average inflation targeting".17 However, they
have not committed to any specific formula for calculating the mean value, for
instance, over which period this will apply - hence the term "flexible".
The second important change refers to the view of how the labour market should
affect monetary policy decisions. Previously, the wording was that monetary
policy was guided by deviations from maximum employment. These deviations could
of course be both positive and negative. According to the new wording, decisions
will in future be based on an assessment of shortfalls from maximum
employment.
In practice, this means that low unemployment or high employment as such will
not be trigger factors for monetary policy tightening, if inflation is not on its way
up. The Fed is thus saying that it will not risk putting the brakes on too early in
economic upturns, but will allow them to proceed longer than has perhaps been
the case previously. One reason is that if a strong labour market can be retained
over a longer period of time, this will benefit weaker groups, which would
otherwise have problems obtaining employment. This increases total employment but,
interestingly enough, distributional aspects are also considered.
These are certainly interesting solutions. I perceive them mainly as a policy
statement of how the Fed intends to act in future, and a signal of its determination to
achieve its objectives.18 As I see it, Fed has thus explicitly adapted its strategy to
tackle the challenges most central banks are currently facing. As the monetary
policy situation in the United States has a lot in common with that in many other
countries, these changes will be analysed in detail by central banks around the
world. The changes can certainly be regarded as more of an "evolution" than a
"revolution" of the Fed's monetary policy.19 But they are nevertheless sufficiently
large for other central banks having to examine them in detail and discuss
whether they should do something similar. This also applies to the Riksbank, of
course.
My most important messages
Let me conclude by repeating my most important messages. The pandemic has
brought the international discussion on the central banks' monetary policy
framework and strategy to a head. Do they need to adapt to the new situation and, if
so, how? One important question is, as I see it: "How can we ensure that
monetary policy continues to have scope to counteract recessions and increased
unemployment?"
Keeping inflation low and stable certainly has a value in itself. But I have also
argued here that maintaining the inflation target is very important for being able to
use the interest rate as a monetary policy tool in the future. Thus, the fact that
the Riksbank's forecasts do not quite attain 2 per cent should not be regarded as
an indication that we have abandoned the target and intend to focus on
something else in future. It merely shows that it will take longer time to attain the
target than we usually assume.
The policy will in accordance with this remain expansionary, with the tools at our
disposal today. But in the situation that has arisen, it is also fairly obvious that
fiscal policy needs to play a larger stabilising role than has been the case in recent
decades. One idea that I would like to at least air here is that fiscal policy may not
merely provide support for monetary policy with regard to counteracting
recessions, but also explicitly contribute to maintaining confidence in the inflation
target. The inflation target is, after all, not merely the Riksbank's target but a societal
target with a political majority behind it.
With regard to the communication of monetary policy, one possibility would be to
supplement the interest rate forecast with a promise to condition the policy on a
particular development in the economy, for instance that inflation should reach a
certain level before the policy rate is raised. This kind of conditionality can be
regarded as a way of reducing the risk that monetary policy will put the brakes on
too early in an economic upturn. This, in turn, can be seen as a means of
emphasising the importance of symmetry in the inflation target. One problem for the
Riksbank and many other central banks over the past decade has been that
inflation has tended to systematically undershoot the target.
The importance of treating the inflation target symmetrically and not putting the
brakes on too early in economic upturns also appear to have been guiding
principles for the strategy changes announced by the US Federal Reserve at the end of
August. I think these changes are interesting and thought-provoking, and the
Riksbank will analyse them thoroughly.
References
Ball, Laurence M. (2014), "The Case for a Long-Run Inflation Target of Four
Percent", Working Paper WP/14/92, IMF.
Blanchard, Olivier, Giovanni Dell'Ariccia and Paolo Mauro (2013), "Rethinking
Macro Policy II: Getting Granular", IMF Staff Discussion Note 13/03, International
Monetary Fund.
Borg, Anders (2003), "Modern finanspolitik - en syntes mellan Keynes och
Friedman" (Modern fiscal policy - a synthesis between Keynes and Friedman),
Ekonomisk Debatt no. 7.
Brainard, Lael (2020), "Bringing the Statement on Longer-Run Goals and Monetary
Policy Strategy into Alignment with Longer-Run Changes in the Economy", speech
at "How the Fed Will Respond to the COVID-19 Recession in an Era of Low Rates
and Low Inflation", an event hosted by the Hutchins Center on Fiscal and
Monetary Policy at the Brookings Institution, Washington, D.C., 1 September.
Broadbent, Ben (2015), "The economics of deflation", speech at Imperial College
Business School, London, 27 March.
Clarida, Richard H. (2019), "The Federal Reserve's Review of Its Monetary Policy
Strategy, Tools, and Communication Practices", speech at the Conference on
Monetary Policy Strategy, Tools, and Communication Practices (A Fed Listens
Event), Federal Reserve Bank of Chicago, Chicago, Illinois
Clarida, Richard H. (2020), "The Federal Reserve's New Monetary Policy
Framework: A Robust Evolution", speech at the Peterson Institute for International
Economics, Washington, D.C., 31 August.
Federal Reserve (2020), "Federal Open Market Committee announces approval of
updates to its Statement on Longer-Run Goals and Monetary Policy Strategy",
press release, 27 August,
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200827a.htm
Gagnon, Joseph E. and Christopher G. Collins (2019), "The Case for Raising the
Inflation Target Is Stronger than You Think", Realtime Economic Issues Watch,
Peterson Institute for International Economics,
https://www.piie.com/blogs/realtime-economic-issues-watch/case-raising-inflation-target-stronger-you-think
Ingves, Stefan (2020), "The monetary policy toolbox", speech at the Swedish
Economics Association, 10 June.
Jansson, Per (2018), "Monetary policy in less favourable times - what are the
options?", speech at Insurance Sweden, 4 December.
Krugman, Paul (2014), "Inflation Targets Reconsidered", essay presented at the
ECB Sintra conference, May.
Lundvall, Henrik (2020) "What is driving the global trend towards lower real
interest rates?", Sveriges Riksbank Economic Review 2020:1.
Nessén, Marianne and David Vestin (2005), "Average inflation targeting", Journal
of Money, Credit and Banking, 837-863.
Powell, Jerome H. (2020), "New Economic Challenges and the Fed's Monetary
Policy Review", speech at "Navigating the Decade Ahead: Implications for Monetary
Policy", an economic policy symposium sponsored by the Federal Reserve Bank of
Kansas City, Jackson Hole, Wyoming, 27 August.
Rosengren, Eric S. (2015), "Changing economic relationships: Implications for
monetary policy and simple monetary policy rules", speech on 16 April, Federal
Reserve Bank of Boston.
Sims, Christopher A. (2016), "Fiscal Policy, Monetary Policy and Central Bank
Independence", lunch speech at "Designing Resilient Monetary Policy Frameworks for
the Future", an economic policy symposium sponsored by the Federal Reserve
Bank of Kansas City, Jackson Hole, Wyoming, 26 August.
Skingsley, Cecilia (2016), "A new playing field for monetary policy: What can a
small, open economy expect?", speech at the Legal, Financial and Administrative
Services Agency capital market day, 19 May.
Sveriges Riksbank (2017), "The Riksbank's experiences of publishing repo rate
forecasts", Riksbank studies, June 2017.
Summers, Lawrence H. (2016), "The Fed thinks it can fight the next recession. It
shouldn't be so sure", column in the Washington Post, 6 September,
https://www.washingtonpost.com/news/wonk/wp/2016/09/06/larry-summersthe-fed-thinks-it-can-fight-the-next-recession-it-shouldnt-be-so-sure/
Woodford, Michael (2020), Effective Demand Failures and the Limits of Monetary
Stabilization Policy", NBER Working Paper No. 2776.
Diagram 1: Policy rates at the lower bound
Per cent
3 3
2 2
1 1
0 0
-1 -1
10 12 14 16 18 20
Sweden Euro area USA UK
Sources: National central banks and the Riksbank
Diagram 2: Inflation forecasts below target
Per cent, yearly inflation
3,5 3,5
3 3
2,5 2,5
2 2
1,5 1,5
1 1
0,5 0,5
0 0
10 12 14 16 18 20 22
UK, CPI USA, CPI Euro area, HICP Sweden, CPIF
Sources: BOE, ECB, Federal Reserve and the Riksbank
Note. Inflation refers to the CPIF, the HICP and the CPI. Annual data. Inflation
forecast for USA refers to the median of the members of the FOMC's individual
forecasts. The euro area's inflation forecast refers to the forecasts by ECB and
Eurosystem employees.
Diagram 3: Downward trend for global interest rates
Per cent
6 6
4 4
2 2
0 0
UK
-2 -2
USA
Euro area
Sweden
-4 -4
96 00 04 08 12 16 20
Sources: National central banks and the Riksbank
Note. Real government bond yields, 10-year maturity
Diagram 4: Low ne