Yet, since 2008, many governments have actively used fiscal policy to combat the effects of the crisis and to refinance the banks. As a result, the debt-to-GDP ratios of G7 countries, for example, have increased by an unweighted average of almost 30 percentage points (slide 3). As a consequence, today, the option of implementing new fiscal stimuli has been virtually ruled out. Monetary policy: in the frontline once again When it comes to economic policy matters, central banks have, therefore, returned to the limelight somewhat by default. In the current crisis, monetary policy has proved more effective than the IS/LM model might suggest. This is essentially because central banks have resorted to using various combinations of conventional and unconventional measures to help provide conditions conducive to economic growth in a context of deflationary risks . Here, the aim has often been to impact long rates directly, given that it was no longer possible to influence short-term rates. Several central banks have therefore purchased assets to put pressure on their longerterm yields (quantitative easing). To the same end, some have extended the maturity of the assets on their balance sheets, while others have purchased private sector assets to contribute to the easing of market conditions (credit easing). Meanwhile, others have conducted foreign exchange interventions to reduce pressure on the export sector and to ease monetary conditions. Many have also made implicit or explicit long-term commitments to foster expectations of future low rates.
Their view of the Swedish economy has continued to deteriorate and they have also become gloomier with regard to their own economy. At the same time, households’ inflation expectations one year ahead have risen significantly. However, it can also be noted that households perceive the current inflation rate to be much higher than it actually is. Prior to our next monetary policy meeting we will receive measures of inflation expectations among other groups which must also be analysed (Prospera). The new National Accounts for the first quarter that were published earlier today show that growth in the first quarter was weaker than we had expected. They also show that labour productivity increased slightly in the first quarter of this year, after having fallen for most of 2007. We will be closely analysing what the new GDP statistics otherwise entail for our assessments prior to our next meeting in July. Preliminary statistics indicate a lower rate of wage increase than we had estimated – both for blue-collar and white-collar workers – during the first months of this year. One possible reason for this is the composition effects in the wage statistics. If, for example, new groups are being employed at low entry wages to a greater extent than before, then the average rate of wage increase will be lower. But so far there have not been any signs that the rate of wage increase has accelerated. Of course, this is something we are monitoring closely. Inflation is still high, just as I said before.