Long-Term Evaluation of Swedish Monetary Policy

Sweden came calling to a second-floor office in Posner Hall. Twice before this century the Swedish parliament, the Riksdag, overseeing the world’s oldest central bank, the Riksbank, engaged economists and central banking experts from Europe and the United States to pair up and conduct an independent review of Swedish monetary policy. In the aftermath of the global financial crisis, the Committee on Finance of the Riksdag asked Mervyn King, Governor of the Bank of England (2003-2013), and Carnegie Mellon University’s Marvin Goodfriend, the Friends of Allan H. Meltzer Professor and professor of economics at the Tepper School of Business, to conduct the review.

Goodfriend and King evaluated Swedish monetary policy from 2010 through 2015 — by reading and then summarizing detailed documents and minutes from 36 Riksbank Executive Board Monetary Policy Meetings, conducting extensive interviews of current and former Riksbank board members and staff, and interviewing prominent academic and banking experts. After more than a year of preparation, their 149-page report was made public with a live-broadcast news conference at the Riksdag in Stockholm in mid-January followed by an open hearing at the Riksdag in May, with considerable discussion. The Financial Times wrote that the “high-profile review ... could spur debate across Europe about the goals of monetary policy.”

Their review covered monetary policy, governance, and financial stability, transparency, accountability and structure. The period under review was interesting because as the Swedish economy recovered rapidly in 2010 following the financial crisis, monetary policy underwent a tightening that their review stated, “proved highly controversial.” By the time Goodfriend and King presented their report, Sweden’s economic prospects had diminished to the point that the Riksbank had taken its main interest rate down to minus 0.35 percent, one of the lowest in the world.

Offering 15 recommendations, Goodfriend and King noted that Sweden’s Executive Board confronted a range of challenges for monetary policy and financial stability in the aftermath of the 2008–09 financial crisis that would trouble other central banks — and perhaps insights from the Riksbank’s experience would be of use to other central banks around the world.

Marvin Goodfriend, The Friends of Allan H. Meltzer Professor, professor of economics