Sweden Shows Central Bankers How to Fight Next Asset Bubble

[stockholmer]

Sweden’s central bank may set the direction for other policy makers as it looks beyond conventional inflation targets to asset-price growth in an effort to prevent the next bubble.

“Not countering asset-price increases has been the conventional wisdom among central banks, but what has it actually resulted in?” said Tina Mortensen, an economist at Citigroup Inc. in London. “Surely the current crisis has made central bankers rethink policy; Sweden is actually facing this problem” because “asset prices and monetary policy are a hot topic,” she said.

Riksbank Governor Stefan Ingves has raised the repo rate four times since July even as inflation remains below the bank’s 2 percent target. The increases occurred as house prices move above pre-crisis levels and credit growth hovers near 9 percent. While Sweden raises rates, the U.S., the euro region, Japan and the U.K. are keeping borrowing costs at record lows.

The financial crisis that started more than two years ago was exacerbated by central banks holding rates too low as inflation gauges failed to capture asset-price growth, according to Johnny Akerholm, president of the Helsinki-based Nordic Investment Bank. He says most policy makers are repeating the mistake................. more at http://www.bloomberg.com/news/2010-12-28/sweden-shows-central-bankers-how-to-fight-against-next-asset-price-bubble.html



Not to include asset prices is the same as non-accountability – which is how the Fed likes it.