Roine Vestman discusses inflation targeting in Expressen
Roine Vestman, a professor of economics at Stockholm University, examines alternatives to using the Central bank’s policy interest rate to curb inflation.
Roine Vestman is a professor of economics at Stockholm University. Photo: Rickard Kilström
Are higher interest rates the only way to reduce inflation?
In a video segment on Expressen Play, the reporter asks Roine Vestman whether raising interest rates – which hit ordinary people hard – is truly the only way to bring down inflation and whether higher rates benefit the banks.
”It is the world's central banks that have been given the responsibility of keeping inflation around the target by adjusting interest rates. Raising interest rates does not automatically increase the profits of private Swedish banks or major banks, as their financing costs also rise,” Vestman responds.
Swedish households have increased their debt
Swedes have high levels of debt compared to other Europeans, according to Statistics Sweden. Over several decades, households have increased their debt because obtaining loans has been relatively easy. Could the government help curb inflation in other ways, such as regulating amortization rates?
Vestman suggests that, in theory, mortgage amortization requirements could be made cyclical and linked to inflation. To prevent the financial burden of tighter economic policies from being concentrated to an even smaller group (highly indebted households), households with large debts could be required to hold a certain portion of their loans at a fixed interest rate.
However, he does not believe Sweden should implement its own unique solution for keeping inflation in check, as this could lead to uncertainty and a loss of trust from the international community.
”That’s exactly what led to Sweden’s crisis in the 1990s. Back then, the world had no confidence in Sweden’s economic policies,” Vestman says in the video.
