Wednesday, December 29, 2010
This article hails the Swedish central bank as a role model in fighting the Swedish housing bubble. I wouldn't be too sure about that because credit growth remains excessive despite not only rate hikes but also new rules requiring more money down for home buyers. In part this is because of the limited effectiveness of monetary policy in a small country, and in part this is because the rate hikes have in fact been very timid so far. Still, most of the Riksbank board deserves credit (Lars E.O. Svensson, former Princeton colleague of Paul Krugman and Ben Bernanke, being the big exception) for recognizing that inflation isn't simply something which means higher consumer prices, it could also take the form of asset price bubbles.