Global financial crisis, monetary policy and crisis management

Torbjörn Becker

This publication discusses how the Riksbank and other Swedish institutions dealt with the global financial crisis that started in 2008. But the discussion is also forward-looking by analysing how the total risks are dealt with in the financial system, so-called macro surveillance, and the relationship between monetary policy and financial stability.

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FINANCIAL crises might have devastating consequences for the real economy in terms of lost production, unemployment and increased uncertainty. At the same time, there is often a decrease in the scope of action for monetary and fiscal policy to counteract the problems. Domestic problems can be caused and reinforced by connections to the global financial markets. This publication discusses how the Riksbank and other Swedish institutions dealt with the global financial crisis that started in 2008. But the discussion is also forward-looking by analysing how the total risks are dealt with in the financial system, so-called macro surveillance, and the relationship between monetary policy and financial stability.

UNCONVENTIONAL MEASURES During the crisis, international agreements with central banks about borrowing and lending, guarantee programmes, loans with longer durations at both a flexible and variable interest rate, certificates with a seven-day duration, stabilization fund and capital infusion programmes were used. One result of this was that the balance sheet of the Riksbank grew from 200 to 760 billion kronor.

FINANCIAL STABILITY Clearly describing in what way financial stability is included in the objective function of the Riksbank is probably a more important question than the question about what institution that is to deal with macro surveillance and the related tools.

AUTHOR Torbjörn Becker has a PhD in Economics and is Director of SITE, Stockholm Institute of Transition Economics, at Stockholm School of Economics. E-mail: Torbjorn.Becker@hhs.se.