08 September 2017 at 12:08 GMT
- 'Small, open economies' can lead larger zones
- Swedish, Canadian housing, central banks on same path
- Central banks need to turn to fighting bubbles
The small, open economies of Canada and Sweden share
more than their boreal landscapes. Photo: Shutterstock
By Steen Jakobsen
I am still impressed by the Bank of Canada’s seeming willingness to fight “bubbles” rather than the ghosts of inflation induced by the non-existent Phillips curve.
Below are three interesting charts from Nordea FICC’s Andreas Wallström and Mikael Sarwe.
Mikaels’ chart (the first) points out how a small, open economy will lead bigger zones (small and open means more exposed) while Andreas’ two charts point out how Canada, which with all due respect is still a small and open economy, follows the same track in terms of housing and (almost) policy.
The larger point?
The best of the cyclical aspect, of cyclical performance, is already past us. Now it is left to the world's more flexible central banks to move away from dogmatic Phillips curve-watching to fighting bubbles.
Such a shift would represent a true countercyclical monetary policy which, if followed through, would lead to lower equity and housing prices; higher policy rates, but also improved price discovery and economic balance.
Swedish, Eurozone manufacturing PMIs:
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Swedish and Canadian rates:
Housing prices, Sweden and Canada:
— Edited by Michael McKenna