Same goals, different trade-offs? Norges Bank and the Riksbank after the high-inflation period

Ekonomisk kommentar Same Goals but Different Trade-offs? Norges Bank and the Riksbank after the High-Inflation Period Jakob Almerud and Anna Seim NO 5 2026, July 2

Summary 2 Summary After the high-inflation period 2022–2023, inflation developments in Sweden and Norway have diverged. Despite a higher policy rate, Norwegian inflation remains above the inflation target, while Swedish inflation has been below it in early 2026. In this economic commentary, we discuss possible explanations for this development. 1 We note that while the policy rate has indeed been higher in Norway than in Sweden, Norwegian monetary policy has not necessarily been more contractionary. The fact that Norway has experienced stronger real economic development than Sweden rather indicates that its policy has been less contractionary than Sweden's. This may suggest that the neutral rate is higher in Norway than in Sweden. Furthermore, Norges Bank's and the Riksbank's own forecasts indicate that Norges Bank has placed greater emphasis on real economic stabilization than the Riksbank. We then discuss possible reasons why Norges Bank and the Riksbank appear to have made different choices in the trade-off between the inflation target and real economic development. We find no data support for different Phillips curve slopes making it more costly to bring inflation down to target in Norway. We also discuss whether exchange rate considerations and differences in monetary policy mandates may have influenced the two central banks' different strategies. Authors: Jakob Almerud and Anna Seim. Jakob Almerud works at the Monetary Policy Department. Anna Seim is Deputy Governor of the Riksbank. The commentary is based on a speech Anna Seim gave at the Conference on the Monetary Policy Provision, Norges Bank on March 2, 2026. The purpose of the commentary is to descriptively highlight developments in recent years. The text is not a debate contribution or a review of the monetary policy conducted. 2 Economic Developments in Sweden and Norway after the Latest High-Inflation Period After the sharp rise in inflation in 2022, developments in Sweden and Norway have diverged on a number of points. Diagram 1 shows Swedish and Norwegian inflation during the period 2018–2025. The harmonized price measure HICP, shown in the left panel, is suitable for cross-country comparisons as it is calculated in a similar way. The right panel shows measures of underlying inflation that have a closer 1 Economic commentaries are short analyses on relevant issues for the Riksbank. They can be authored by individual Executive Board members and Riksbank staff. Staff commentaries are approved by the department head, while Executive Board members are themselves responsible for the content of their commentaries. 2 The authors would like to thank Carl Andreas Claussen, Charlotta Edler, Marie Hesselman and Matilda Kilström for their valuable comments and suggestions. Special thanks also to Norges Bank for assisting with data.

Economic Developments in Sweden and Norway after the Latest High-Inflation Period 3 connection to the countries' actual inflation targets. The figure indicates that it has taken longer to reach the 2 percent target in Norway than in Sweden.3 Diagram 1. Inflation Development in Sweden and Norway Percent Note: The left chart shows harmonized consumer prices. The right chart shows CPIF excluding energy for Sweden and CPI excluding energy with constant taxes for Norway. Sources: SSB and SCB. Norwegian inflation has been higher in recent years despite the Norwegian policy rate in nominal terms being higher than the Swedish one after inflation in both countries had fallen back from their highest levels. While the Riksbank has lowered its policy rate by 2.25 percentage points, Norges Bank's policy rate has remained steadily above 4 percent since summer 2023 (see Diagram 2). 3 The countries' target variables are CPI for Norway and CPIF for Sweden. These are volatile due to large movements in energy prices. The inflation measures we have chosen here provide a clearer picture of underlying movements.

Economic Developments in Sweden and Norway after the Latest High-Inflation Period 4 Diagram 2. Policy Rates in Sweden and Norway Percent Sources: Norges Bank and the Riksbank. However, a higher policy rate in nominal terms does not necessarily mean that monetary policy is more contractionary. To determine the extent to which monetary policy is expansive, we can study real economic developments. Diagram 3 shows the GDP gap, i.e., the difference between actual GDP and potential GDP, which can be used to measure resource utilization in the economy. Despite the policy rate being lower in Sweden than in Norway, Sweden's GDP gap has been negative since 2023, while the Norwegian GDP gap was positive even in 2024.4 This indicates that monetary policy has been less contractionary in Norway than in Sweden. That a given level of the policy rate can be more expansive in Norway than in Sweden is supported to some extent by estimates of the long-term neutral rate, i.e., the rate consistent with inflation at target and resource utilization in balance in the long run. There are reasons to believe that it is somewhat higher in Norway than in Sweden. Norges Bank's estimate of the long-term nominal neutral rate is that it lies within the range of 2.25–3.5 percent. The Riksbank's estimate of the corresponding range for Sweden is 1.5–3.0 percent.5 4 The GDP gap measures are Norges Bank's and the Riksbank's own assessments, respectively. 5 For the Norwegian estimate of the neutral rate, see Almlid and Asshoff (2025). For the Riksbank's assessment, see Seim (2024).

Economic Developments in Sweden and Norway after the Latest High-Inflation Period 5 Diagram 3. GDP Gap in Sweden and Norway Percent Sources: Norges Bank and the Riksbank. That the nominal rate that stabilizes inflation at target in the long run is higher in Norway than in Sweden is also supported by developments in long-term inflation expectations and unit labour costs, i.e., the cost per unit produced, both of which have been higher in Norway (see Diagram 4). Both of these measures indicate that inflationary pressure has been higher in Norway than in Sweden. The higher inflation expectations imply that for a given nominal rate, the real rate, which according to economic theory is the relevant one for economic development, is lower in Norway than in Sweden. We can only speculate whether the higher inflation expectations in Diagram 4 have influenced inflation and wage dynamics in Norway. Both countries have relatively similar wage formation systems. That the average unit labour cost has been higher in Norway after the high-inflation period could indicate that the inflation target functions as a stronger nominal anchor in Sweden than in Norway. Investigating this hypothesis in a more in-depth analysis falls outside the scope of this commentary and is something we leave to others.

Have Norges Bank and the Riksbank Made Different Trade-offs? 6 Diagram 4. Inflation Expectations and Unit Labour Costs in Sweden and Norway Percent (left) and annual percentage change (right) Note: Inflation expectations refer to the expected annual percentage change in CPI in five years. Norwegian inflation expectations are economists' assessments, while Swedish ones refer to all assessors. Average unit labour costs (dashed lines) are calculated over the period 2023–2025. Sources: Norges Bank, Origo Group, SCB and SSB and the Riksbank. Have Norges Bank and the Riksbank Made Different Trade-offs? Both Norges Bank and the Riksbank are, according to their mandates, to strive for both price stability and an economy in cyclical balance. Since a tighter monetary policy dampens both inflation and real economic development, a trade-off can arise between stabilizing inflation and promoting economic activity. The weight placed on inflation development relative to the real economy is a choice the central bank makes, and different central banks may, for good reasons, make different trade-offs. Higher inflation combined with stronger resource utilization in Norway is consistent with Norges Bank having placed greater emphasis on real economic stabilization than the Riksbank. But to investigate whether the weight has actually differed, it is not enough to study actual developments, as these may have been influenced by factors the central banks did not foresee. Instead, we need to examine their forecasts during the period. Both central banks publish forecasts for inflation and real economic development four times a year. These are in turn conditioned on monetary policy.6 By comparing the forecasts for inflation with the forecasts for the GDP gap, we can 6 Both Norges Bank and the Riksbank also publish their policy rate forecasts, i.e., interest rate paths. Both central banks publish forecasts at every other monetary policy meeting, i.e., in connection with 4 of the 8 ordinary decision-making meetings held each year.

Have Norges Bank and the Riksbank Made Different Trade-offs? 7 calculate the implicit weight the two central banks attach to real economic stabilization relative to stabilizing inflation at target.7 The relative weight the central bank attaches to the real economy is usually denoted 𝜆. If 𝜆 = 0, the central bank cares only about stabilizing inflation. If 𝜆 = 1, the central bank attaches equal weight to real economic stabilization and price stability. If 𝜆 > 1, the central bank attaches greater weight to real economic stabilization than to price stability. In a static world, where changes in the policy rate affect inflation and GDP instantaneously, 𝜆 can be calculated as 𝜆 = − (inflation − 2) ∙ effectinflation GDPgap ∙ effectGDPgap . The expression shows that it is not only the inflation deviation and the GDP gap that determine this weight, but also the effect of monetary policy on these two variables. If a monetary policy tightening has a smaller effect on inflation than on the GDP gap, it may be more difficult to reach the inflation target with the help of monetary policy. This is taken into account in the calculation. Another way to see it is that if the effect of monetary policy on inflation is very small, but inflation still ends up close to the target, it is an indication that the central bank attaches great importance to inflation. Diagram 5 shows the implicit 𝜆 resulting from the two central banks' forecasts and estimated effects of monetary policy.8 Several simplifying assumptions have been made in the calculation. Among other things, it assumes that the two central banks only aim to stabilize inflation and the GDP gap. The diagram shows that the Riksbank and Norges Bank appear to have placed roughly the same weight on the real economy from 2018 to mid-2022. Thereafter, Norges Bank's 𝜆 is higher, suggesting that the weight on real economic stabilization has increased. The results should be interpreted with caution but hold even if effects from the Riksbank's macro model MAJA are used instead of the Riksbank's assessed effects of monetary policy. 7 See Almerud et al. (2026) for details. The method is based on simulations of optimal monetary policy as described in Barnichon and Mesters (2023). 8 The effects of monetary policy are based on Norges Bank's macroeconomic model NEMO (Motzfeldt and Mirir, 2019) and assessed effects of monetary policy for Sweden (Andersson and Lundvall, 2023).

There May Be Several Reasons Why the Central Banks Have Chosen Different Strategies 8 Diagram 5. Implicit λ calculated for the Riksbank and Norges Bank Note: λ captures the weight placed on stabilizing the GDP gap relative to price stability for a specific loss function that only considers these two variables. The calculations are based on the Riksbank's and Norges Bank's forecasts, the macroeconomic model NEMO for Norway, and the assessed effects of the Riksbank's monetary policy presented in Andersson and Lundvall (2024). Negative values would imply that no trade-off existed between the variables at the time of decision and have therefore been removed; see Almerud et al. (2026) for a discussion. Sources: Norges Bank, the Riksbank, and own calculations. There May Be Several Reasons Why the Central Banks Have Chosen Different Strategies Based on the results above, a natural question is what could be the reason why Norges Bank has placed greater emphasis on the real economy than the Riksbank after 2022. We briefly discuss some possible explanations below. It Does Not Seem More Costly to Bring Down Inflation in Norway One hypothesis is that it would be more costly to stabilize inflation in Norway than in Sweden, in terms of GDP. According to basic economic theory, this would be the case if the Phillips curve, which in a common variant captures the relationship between inflation and the GDP gap, is flatter. To investigate whether this is the case, one can calculate a so-called Sacrifice Ratio, which calculates how much it costs in terms of weaker resource utilization to bring down inflation by one percentage point. If it is more costly to suppress inflation, there are reasons to place greater emphasis on real economic stabilization.9 Both the Riksbank and Norges Bank use macroeconomic models to conduct simulations and forecasts. Table 1 reports Sacrifice Ratios for Norges Bank's macro model NEMO, the Riksbank's macro model MAJA, and for the assessed effects of 9 For a review of this in a simple macroeconomic model, see Chapter 5 in Galí (2015).

There May Be Several Reasons Why the Central Banks Have Chosen Different Strategies 9 monetary policy that are often used in the Riksbank's scenario work.10 The table shows that MAJA has a Sacrifice Ratio of 2.1. This means that it costs 2.1 percentage points in a worsened GDP gap to drive down inflation by one percentage point. In NEMO, the corresponding cost is 1.8. This indicates that the cost of inflation fighting in terms of lower GDP is not higher in Norway than in Sweden, but rather lower. Thus, the hypothesis that Norges Bank would place greater emphasis on stabilizing the real economy because it is more costly to bring down inflation in Norway is not supported by the results of this simple exercise. Table 1. Sacrifice Ratios in Different Models Model Sacrifice ratio Assessed effects of monetary policy (Sweden) 3.4 MAJA (Sweden) 2.1 NEMO (Norway) 1.8 Note. Sacrifice Ratio indicates how much lower the GDP gap needs to be for inflation to decrease by one percentage point. A Sacrifice Ratio of 2 means that the GDP gap needs to be two percentage points lower for inflation to fall by one percentage point. Sources: Norges Bank, the Riksbank, and own calculations. What Role Might the Exchange Rate Have Played? Since the exchange rate affects, among other things, import prices and inflation, it is an important variable that central banks monitor closely.11 A higher policy rate can, all else being equal, attract foreign capital and contribute to a strengthening of the exchange rate, which in turn can dampen inflation. The exchange rate is influenced more by interest rate differentials between countries than by the expansiveness of monetary policy. The higher policy rate in Norway could therefore indicate an effort to strengthen the Norwegian krone against other currencies. As shown in Diagram 6, however, the Norwegian krone trended weaker against the Swedish krona between 2022 and 2025. This would suggest that Norges Bank, if it had wanted to strengthen the Norwegian krone, would have needed an even higher policy rate. 10 For a description of NEMO, see Motzfeldt Kravik and Mirir (2019). MAJA is described in detail in Corbo and Strid (2020). 11 See, for example, Rosén and Vredin (2025) and Seim (2025) for a discussion of factors affecting exchange rate developments.

There May Be Several Reasons Why the Central Banks Have Chosen Different Strategies 10 Diagram 6. Exchange Rates, Sweden and Norway Note: For SEK/EUR and NOK/EUR, a lower value indicates a stronger krona. For SEK/NOK, a lower value indicates a stronger SEK. Source: Macrobond Financial AB. The Monetary Policy Mandate May Have Played a Role Another reason why the two central banks have made different trade-offs could be differences in their monetary policy mandates. The mandates affect each central bank's monetary policy strategy and thus how inflation and the real economy develop. The legislations defining the two central banks' monetary policy mandates have many similarities but differ in some respects. In both countries, the inflation target is 2 percent.12 Both central banks have a high degree of independence, but in Sweden there is a double instruction prohibition, while the government can give Norges Bank instructions under extraordinary circumstances. In Norway, the inflation target is formally determined by the government, and in Sweden by the Riksbank itself (the Swedish Riksdag must, however, approve the choice). Another difference is how the monetary policy objectives are described in the two countries' legal texts. In Sweden, the law is more lexicographical than in Norway. In the Swedish law, it is stated in the first paragraph of Chapter 2 that the overarching goal is price stability, and in the subsequent paragraph that the Riksbank, without disregarding the price stability objective, shall contribute to a balanced development of production and employment. Price stability is also mentioned first in Norwegian law. It then states that the objective of monetary policy is that the annual percentage change in CPI shall be 2 percent, and that monetary policy shall be forward-looking and flexible so that it can contribute to high and stable production and employment, and to preventing the build-up of financial imbalances. There are thus two principal differences between the legal texts. Firstly, the lexicographical formulation makes the price stability objective more clearly overarching in the 12 In Sweden, the target level has been the same since its introduction in 1995. In Norway, the target level was lowered from 2.5 to 2 percent in 2018.

Concluding Remarks 11 Swedish legal text. Secondly, consideration of financial stability in monetary policy is more prominent in Norwegian law than in Swedish law. How much these differences matter in practice is, however, unclear. Norges Bank's monetary policy strategy statement from October 2024 states that price stability is the overarching objective, which suggests a lexicographical interpretation also of the Norwegian legal text.13 But at the same time, the document states that Norges Bank will always place importance on real economic stabilization in monetary policy, expressed as high and stable production and employment. Real economic stabilization is more downplayed in the Riksbank's strategy document, which can be read in the Riksbank's monetary policy reports.14 That Norges Bank has placed greater emphasis on real economic stabilization may thus be an indication that the design of the law plays a certain role. The inclusion of financial stability considerations as a monetary policy objective may also have contributed to Norges Bank not raising the interest rate more than they did during the period we studied here. Concluding Remarks Our analysis indicates that Norges Bank, despite a higher nominal policy rate, has conducted a less contractionary monetary policy than the Riksbank and placed a higher weight on real economic stabilization than the Riksbank after the inflation surge in 2022. This may have contributed to Norwegian inflation and Norwegian inflation expectations being higher than in Sweden. At the same time, real economic development has been stronger in Norway. We present several possible explanations for why Norges Bank appears to have made a different monetary policy trade-off than the Riksbank. We find no support in our simple calculations for the hypothesis that it would be more costly to fight inflation in Norway than in Sweden. We note that if Norges Bank wanted to strengthen the Norwegian krone, the policy rate could have been raised even more. We also note that the design of the monetary policy mandate may have played a certain role. However, attempting to substantiate what actually drove the differences in monetary policy requires deeper analysis than this commentary allows.

12 References Almerud, Jakob, Carl Andreas Claussen and Matilda Kilström (2026), “Checklista för välavvägd penningpolitik – ett förslag och en illustration”, Penning och Valutapolitik nr 1, pp 21–53, Sveriges riksbank. Almlid, Eirik and Sina Asshoff (2025), “Estimating the Neutral Real Rate of Interest in Norway”, Staff memo, Norges Bank. Andersson, Björn. and Henrik Lundvall (2024), “Penningpolitikens effekter”, Ekonomisk kommentar, Sveriges riksbank. Barnichon Régis. and Geert Mesters (2023), “A Sufficient Statistics Approach for Macro Policy”, American Economic Review, vol 113, no 11, pp. 2809-45. Corbo, Vesna and Ingvar Strid (2020), “MAJA: A two-region DSGE model for Sweden and its main trading partners”, working paper no 291, Sveriges riksbank. Galí, Jordi (2015). Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework and Its Applications, second edition, Princeton University Press. Motzfeldt Kravik, Erling and Yasin Mirir (2019), “Navigating with Nemo”, Staff memo, Norges Bank Gustav Rosén and Anders Vredin (2025) “Går det att förstå växelkursens utveckling med en ny modell?”, Staff memo, Sveriges riksbank. Sveriges riksbank (2026), Penningpolitisk rapport, March, 2026. Seim Anna (2024), “Neutral ränta – betydelse, begränsningar och bedömning”, speech at Sveriges riksbank on November 26, Sveriges riksbank. Seim, Anna (2025), “Drivkrafter bakom kronans utveckling”, speech at Sveriges riksbank on November 14, Sveriges riksbank.