What Successful and Unsuccessful Monetary Policy Look Like

Via Matt Yglesias we learn about the incredible recovery of the Swedish economy and how an aggressive monetary policy played a key role.  Specifically, the Swedish central bank expanded its balance to sheet to 25% of GDP versus the Fed's 15%, it set an explicit and clearly communicated inflation target, and charged a negative interest rate on excess reserves.  Swedish authorities also were not afraid to see their currency depreciate.  All of these steps would horrify the hard-money advocates in the United States, but I would ask to them to consider the benefits the Swedes are now enjoying: lower unemployment, higher real GDP growth, and less overall human suffering.  

Just in case there are any lingering doubts about the benefits of more aggressive monetary policy, take a look a the level of nominal spending in both Sweden and the United States.  Nominal spending in both countries takes a big hit, but only in Sweden does nominal spending undergone a robust recovery.  In fact, nominal spending is about back to its trend level:  (Click on figure to enlarge.)

It almost appears as if the Riksbank, the Swedish central bank, has a nominal GDP level target.  Three cheers for the Riksbank.  Now take a look at the U.S. nominal GDP:

These figures indicate U.S. monetary authorities could learn something from the Swedes.  Therefore, let me make a modest proposal: all incoming Fed officials, whether regional bank presidents or board governors, should spend six months interning at the Riksbank.  And while we are at it, let's also make all incoming ECB governing council members go through the same internship.  The world would be a much better place.