2014-39 Interest free money

You can get money at zero interest in Sweden

Prices have been falling so the Swedish central bank lowered the interest rates as much as it could.

Everyone is worried about deflation. The Swedish central bank's target is 2% inflation.

These worries are perhaps overblown. One reason inflation is low is that oil prices have been falling. Unless you are Saudi Arabia, Russia or Iran etc, low oil prices are a good thing.

The former senior deputy governor of the Bank of Canada, Tiff Macklem, divided disinflation into a "good disinflation" and a "bad disinflation".

A good disinflation is one that is caused by positive developments in the economy. He talked about greater competition among retailers; the drop in the price of oil is another example of a good disinflation.

Bad disinflation is caused by economic weakness and lack of demand.

There is another important difference: a "good disinflation" is more likely to be temporary as it is less likely to affect expectations. When the price of oil falls, people know that they will not continue to fall forever. Once the price of oil stops falling, its effect to lower inflation will end. Since firms and households know this, they rare less likely to change their expectations of inflation.

But in case of inflation caused by economic weakness, it is not clear how long it may last. So inflation expectations are more likely to fall and the drop in inflation is more likely to be permanent.