monetary policy and the future of Cecilia Skingsley the - - PowerPoint PPT Presentation

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monetary policy and the future of Cecilia Skingsley the - - PowerPoint PPT Presentation

Jan 05, 2024 613 likes •726 views

Post-pandemic monetary policy and the future of Cecilia Skingsley the policy-rate tool First Deputy Governor Nordea 7 October 2020 Policy rates at the lower bound 3 3 2 2 1 1 0 0 -1 -1 10 12 14 16 18 20 Sweden Euro area USA

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SLIDE 1

Post-pandemic monetary policy and the future of the policy-rate tool

Nordea 7 October 2020

Cecilia Skingsley First Deputy Governor

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SLIDE 2

Policy rates at the lower bound

Sources: National central banks and the Riksbank

  • 1

1 2 3

  • 1

1 2 3 10 12 14 16 18 20 Sweden Euro area USA UK

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SLIDE 3

Inflation forecasts below target

  • 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. Sources: BOE, ECB, Federal Reserve and the Riksbank

0,5 1 1,5 2 2,5 3 3,5 0,5 1 1,5 2 2,5 3 3,5 10 12 14 16 18 20 22 24

UK, CPI USA, CPI Euro area, HICP Sweden, CPIF

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SLIDE 4

Downward trend for global interest rates

  • Note. Real government bond yields, 10-year maturity.

Sources: National central banks and the Riksbank

  • 4
  • 2

2 4 6

  • 4
  • 2

2 4 6 96 00 04 08 12 16 20 UK USA Euro area Sweden

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SLIDE 5

Low neutral rate makes expansionary monetary policy more difficult

Policy rate Time Actual policy rate Neutral policy rate

Difficult to stimulate

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SLIDE 6

Three central questions

Is it good if the central bank can counteract recessions with policy rate cuts? Is it easier to counteract recessions if the interest rate is normally somewhat higher 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?

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SLIDE 7

Less monetary policy scope with lower inflation target

Economic development Policy rate

Lower bound for the rate

Country with 2% inflation target Country with lower inflation target

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SLIDE 8

Three central questions

Is it good if the central bank can counteract recessions with policy rate cuts? Is it easier to counteract recessions if the interest rate is normally somewhat higher 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?

YES YES YES

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SLIDE 9

The way forward

  • Communication of central importance
  • The inflation target is still our focus
  • Continued expansionary policy with possible modifications
  • More important role for fiscal policy
  • Conditioning of monetary policy a possible route?
  • Federal Reserve's strategy changes are interesting
  • Overshoot target if inflation has previously undershot – “Flexible Average IT”
  • Do not slow down too early in economic upturns
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SLIDE 10

My most important messages

  • The inflation target will take longer to attain but is still our focus
  • Facilitates the distribution of resources through wage formation (easier to adapt relative

wages)

  • Preserving effective interest rate tools is of central importance in stabilising economic

activity

  • Fiscal policy needs to play a greater role in stabilisation policy
  • Central banks need to continue discussing and analysing strategy and frameworks
  • Federal Reserve's changes an important input