Krugman’s New One On Swedish Monetary Policy

Paul Krugman asks “How do you say “nobody could have predicted” in Swedish?”. As a native Swedish speaker I can inform him and others that the answer is: “ingen kunde ha förutsett”.

Seriously though, it is obvious from the post that the question in the title was rhetorical and that he wasn’t really looking for a translation of that question to the Swedish language, but was trying to say that his former Princeton colleague Lars E.O. Svensson was right.

“Right” in the sense that Sweden’s CPI fell on a year to year basis in March. But first of all, like the low inflation numbers in many other countries, this drop is largely based on temporary factors that will soon go away, such as the fact that easter was in April this year instead of March like last year.

Secondly, to the extent the drop isn’t temporary it reflects positive supply side factors. GDP and employment is growing faster in Sweden than in most countries with higher inflation, so there is no indication that it is holding back growth.

Furthermore, asset prices are rising fast in Sweden, with house- and stock prices being at record high levels, not exactly what you would expect in what Krugman calls a “deflationary trap”.

Indeed, to the extent the low consumer price inflation in Sweden is a problem it is because it makes the Riksbank to try to counteract it with more inflationary policies, causing an asset price boom.


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