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Where There’s Smoke, There’s Fire: An Analysis of the Riksbank’s Interest Setting Policy
Stockholm University, Faculty of Social Sciences, Department of Economics.
Stockholm University, Faculty of Social Sciences, Department of Economics.
2017 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

We analyse the Swedish central bank, the Riksbank’s, interest setting policy in a Taylor rule framework. In particular, we examine whether or not the Riksbank has reacted to fluctuations in asset prices during the period 1995:Q1 to 2016:Q2. This is done by estimating a forward-looking Taylor rule with interest rate smoothing, augmented with stock prices, house prices and the real exchange rate, using IV GMM. In general, we find that the Riksbank’s interest setting policy is well described by a forward-looking Taylor rule with interest rate smoothing and that the use of factors as instruments, derived from a PCA, serves to alleviate the weak-identification problem that tend to plague GMM. Moreover, apart from finding evidence that the Riksbank exhibit a substantial degree of policy rate inertia and has acted so as to stabilize inflation and the real economy, we also find evidence that the Riksbank has been reacting to fluctuations in stock prices, house prices, and the real exchange rate.

Place, publisher, year, edition, pages
2017. , 28 p.
Keyword [en]
Riksbank, Taylor Rule, Asset Prices, Instrumental Variables General Method of Moments (IV GMM), Principal Component Analysis (PCA), Factor GMM
National Category
Economics
Identifiers
URN: urn:nbn:se:su:diva-143163OAI: oai:DiVA.org:su-143163DiVA: diva2:1096039
Presentation
2017-01-12, 15:00 (English)
Supervisors
Available from: 2017-06-09 Created: 2017-05-16 Last updated: 2017-06-09Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
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  • asciidoc
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