Riksbank helpless

Sweden’s central bank, the Riksbank, has had to resort to desperate measures in a bid to raise inflation. The benchmark interest rate has been cut to a negative 0.35% and the central bank is to purchase government bonds to a value of 135 billion kronor, which is equivalent to 4% of GDP. Despite this, inflation has not picked up and the time has come to consider other measures, according to Professor Tore Ellingsen of the Stockholm School of Economics.

The Professor, who is the chairman of the committee that awards the Riksbank’s Prize in Economic Sciences in Memory of Alfred Nobel, advocates an increase in government borrowing as a way of pushing up inflation. The idea is that the state borrows money and passes this on to households in the form of tax cuts or transfers.

“With more money, it becomes worth less, which is the same as inflation. The idea is that households become more interested in goods and services than money,” says Professor Ellingsen.