SPEECH DATE:  13/04/2018  SPEAKER:  Martin Flodén  VENUE:  Swedish House of Finance  SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 registratorn@riksbank.se www.riksbank.se  The Riksbank's balance sheet: How large should it be in the future? * Prior to the financial crisis, the Riksbank had a balance sheet of about SEK 200 billion. It now amounts to SEK 870 billion. The balance sheet has thus risen from 6 per cent to 20 per cent of GDP (see figure 1). This recent growth in the balance sheet is an experience we share with many other central banks. It is primarily a result of central banks having complemented low interest rate policy with asset purchases in order to make monetary policy even more expansionary. This expansionary monetary policy has had an impact and helped strengthen the economy as well as push up inflation to levels that are compatible with the inflation target. In Sweden, we are therefore approaching a situation where the monetary policy expansion can start to be tapered and the interest rate and balance sheet can start to be normalised. But what will monetary policy actually look like in a future “normal situation”? This is currently a subject of intense discussion among many central banks and other agents. Analyses by the Riksbank and others indicate that average interest rates in the future will be lower than what was deemed normal in the decades before the financial crisis.
Using today’s definition, one could say that we in a sense had a negative monetary base in Sweden. This illustrates that the currently used definition of “monetary base” is actually rather strange. The liquidity deficit has thereafter shifted to a surplus. The Riksbank is now draining the surplus liquidity by issuing certificates (and sometimes via finetuning transactions) with one-week maturity at an interest rate which we still call the repo rate. A better term would be the “certificate rate”. 8  See Yu (2016) and Chapter 1 in Walsh (2017) for summaries of studies based on US data. These studies usually investigate the immediate impact on asset prices when news of asset purchases is made public. It is more difficult to study whether the price effects are permanent and here the empirical support is therefore weaker. Altavilla et al. (2015) find that the ECB’s purchasing programme has pushed down interest rates across quite a broad spectrum of European assets, and particularly as regards government bonds in countries with high interest rates (such as Italy and Spain). De Rezende et al. (2015) find that the initial stages of the Riksbank’s purchasing programme contributed to rate falls in about the same way as purchasing programmes in other countries. 9  In a survey of central bank governors and leading researchers, a high percentage in both groups say that the purchasing of government bonds and/or other assets is a tool that should continue to be part of the central bank toolbox even after the crisis (Blinder et al., 2017).