No, but this doesn’t mean they weren’t thinking about it at the Riksbank. Lets run an argument. The fact that they put down the rates when the situation isn’t dire, means that they believe that monetary policy is an important instrument.

I say ‘they believe’ since this is a view which is clearly held at the US fed, more or less accepted at the BoE, but often questioned by some key people at the ECB in Frankfurt. Essentially they don’t change rates often (the ‘twirp’ policy) because they don’t give it the same importance as they give to their attempt to control monetary aggregates. In this sense some of them are simply ‘old fashioned’ monetarists, and even if this doesn’t matter too much, they are simply wrong. Monetary policy does work reasonably well.

Now where it doesn’t have much impact is when inflation falls below 0%. This has been Japan’s major problem. If the bankers in Sweden believe in monetary policy, then they are worried by the possibility of deflation.

Maybe cultural factors are important. In the US it is regarded as important to discuss some things more openly than it is traditional to do in many european societies. This is in part the transparency thing.

Now deflation is partly about expectations, so I think some might feel you shouldn’t talk about it, because you don’t want to create a climate of expectation.

Incidentally, when the Bundesbank chief spent some of his time listening to Joaquim Fels, I have the feeling that deflation would be one of the issues he would have been thinking about. It is clear that people who think about this would be worried about two things: an oil ‘bust’, and a serious slowdown in China. Both of these would have a major downward impact on general prices. Anyone with an annual CPI rate of around 1% or below would be at serious risk. Germany fits that profile, and so any serious central banker has to run a ‘what if’ gedanken experiment. The issue is really that the last thing the ECB is equipped for is what is called ‘unconventional’ monetary policy. I guess we will get into all this when the time comes.

Most of the ministries and governmental angencies that are supposed to be indepentent and make objective forecasts have been more and more influenced by the government, a government who?s main promise and objective is to reduce unemployment before the upcomming election.

The social-democratic idea (at least in sweden) is that lower intetrest rates is the only waty to do this..