Economic Affairs

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The Icelandic edition of Economic Affairs, Efnahagsmál is available here.



February 2011
Economic Affairs no. 4: What does Iceland owe?

Authors: Arnór Sighvatsson, Ásgeir Daníelsson, Daníel Svavarsson, Freyr Hermannsson, Gunnar Gunnarsson, Hrönn Helgadóttir, Regína Bjarnadóttir, and Ríkardur Bergstad Ríkardsson.

The Central Bank has published an English translation of an article called, “What Does Iceland Owe?”, in its publication series Economic Affairs. The authors are Arnór Sighvatsson, Ásgeir Daníelsson, Daníel Svavarsson, Freyr Hermannsson, Gunnar Gunnarsson, Hrönn Helgadóttir, Regína Bjarnadóttir, and Ríkardur Bergstad Ríkardsson. The article peers through the maelstrom caused by the collapse of the financial system, causing the settlement of assets and liabilities according to official standards to give a misleading view of the debt position that will be the strongest determinant of Iceland’s welfare in coming years. In the report, the authors estimate the asset and liabilities values that are likely to emerge when the dust settles. This can be called Iceland’s “latent” debt position, although the term “underlying debt position” has also been used. Although there is still considerable uncertainty about the findings, it is virtually a certainty that, when the estates of the failed financial institutions have been settled and other factors that skew the overall picture have been accounted for, it will be revealed that Iceland’s net debt has not been lower in decades. Net public sector debt, on the other hand, will be considerably higher. The report also estimates the country’s latent current account balance, which (for the same reasons) is much more positive than official figures indicate, in part because accrued interest on the estates of the failed banks will never be paid.
February 2009

Economic Affairs no. 1: Indexation and monetary policy

Author: Ásgeir Daníelsson  

The paper explores whether the characteristics of long-term loans in Iceland – indexation, fixed interest rates, and amortised payments – cause monetary policy to be less effective here than in other countries. Studies carried out by foreign economists show that the policy interest rate often has a limited effect on long-term interest rates, which tend to be determined more by global interest rates. This dilutes the impact of monetary policy. It has not been shown that the policy rate has less effect on long-term interest rates in Iceland than in other countries, nor has it been demonstrated that indexation is important in this context.

Fixed interest rates have a different type of impact on supply and demand for credit than variable interest rates do. This difference can be significant for the effectiveness of monetary policy if the policy rate is wielded so that real interest rates vary directly with inflation.

Equity and payments vary greatly over time, depending on whether the loans concerned are indexed and amortised or are equal-instalment loans. New loans constitute a higher percentage of total lending in the latter system, and this percentage varies directly with inflation. If monetary policy primarily affects the supply of new loans, this could explain the difference in monetary policy effectiveness.



InflationMore »

Consumer prices, 12-month changes. Last value: 2.1%
Inflation target 2.5%

CBI's interest ratesMore »
CBI's interest rates
Overnight 3.50%
Loans against collateral 2.50%
Current account 1.50%
Exchange rateMore »
Currency 7.4.2020 Ch. *
USD 142.69 -0.83%
GBP 175.78 -0.71%
CAD 101.8 -0.07%
DKK 20.8 -0.11%
NOK 13.97 1.90%
SEK 14.25 0.76%
CHF 146.68 -0.31%
JPY 1.31 -0.68%
EUR 155.3 -0.13%
* Changes from last entry
Exch. Rate IndicesMore »
Exchange Rate Indices 4/7/2020 Ch. *
Narrow trade index** 203.14 -0.13%
* Changes from last entry
** The index has been recalculated so that, on January 2, 2009, it was assigned a value equivalent to that of the now-discontinued Exchange Rate Index.
Other interest ratesMore »
Penalty rates from 1.4.2020 9.50%
O/N 1.300% 1.550%
S/W 1.500% 1.750%
1 M 1.663% 2.038%
3 M 1.925% 2.425%
1 Y 2.200% 2.700%

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