Noted for Your Morning Procrastination for November 22, 2014
Lunchtime Must-Read: Matthew Yglesias: The GOP's Counterproductive Policy Strategy

Morning Must-Read: Richard Milne: Central banks: Stockholm Syndrome

Richard Milne: Central banks: Stockholm Syndrome: "When the global financial crisis broke in 2008...

...Sweden’s central bank seemed to be one of the best-equipped to fight it. The Riksbank was led by Stefan Ingves, a former senior official at the International Monetary Fund whose expertise lay in financial crises and how to avoid them. One of its deputy governors was Lars Svensson, an expert on Japan’s long battle against deflation and a top thinker on monetary policy. With these credentials, the two men seemed ideally suited to guide the Riksbank’s policy through the turmoil.... At first, they found common ground as the Riksbank cut interest rates in 2009 to 0.25 per cent, their lowest level since its founding in 1668. But for the next two years, the duo clashed bitterly.... The Riksbank’s decision in 2010 to start raising rates--an idea Mr Svensson firmly opposed – has transformed the Swedish central bank from a small but respected institution to a cautionary tale for central banks worldwide. 'Sweden has done an experiment the whole world is interested in', Mr Odendahl says. 'What should we do when monetary policy should be accommodative but there are financial risks? The Swedish lesson is that tightening policy prematurely isn’t the answer'...

Both at the time and in retrospect, it seems completely unclear just why Ingves thought it was time to tighten interest rates back in 2010. The arguments just seem to make no sense whatever. They still do not.