Financial Instability and Monetary Policy: The Swedish Evidence

U. Michael Bergman () and Jan Hansen ()
Additional contact information
U. Michael Bergman: Department of Economics, Lund University, Postal: P.O. Box 7082, SE–22007 Lund, Sweden
Jan Hansen: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 137, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: This paper examines the relationship between financial instability and monetary policy within the Swedish economy. Based on a standard VAR model of monetary policy extended to include measures of financial instability and credit expansions, we examine the interaction between monetary policy and financial stability. We find that both higher interest rates, higher prices and lending expansions contribute to financial instability. As the effects from price shocks are strong and persistent compared to other shocks, our conclusion is that we cannot reject that price stability and financial stability are mutually consistent goals for monetary policy.

Keywords: Financial instability; monetary policy; VAR model; structural shocks (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2002-06-01
New Economics Papers: this item is included in nep-fin, nep-mon and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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