The mechanism is largely the same for the loans in Swedish kronor at longer maturities, which are offered at the repo rate plus a certain premium. By regulating the premium the Riksbank determines how attractive the loans will be compared to the conditions prevailing in the market. The diagnosis that a measure is no longer needed may be difficult to make. Although, for instance, the demand for a particular type of loan may have disappeared, the fact that there is still a possibility to borrow may have a stabilising effect. We will not be in too much of a hurry. And there are at least two items we need to be able to cross off the list before we begin phasing out the measures. We must be able to say with a good degree of certainty that the situation in the financial sector is stable and that it can function normally without support. We must also be in a situation where we expect to be able to attain the inflation target and stimulate the economy sufficiently without the unconventional measures. 8  BIS Review 138/2009  There are other measures that require more active decisions by the Riksbank to be phased out. For instance, the number of counterparties allowed to participate in fine-tuning operations and the list of securities accepted as eligible collateral for credit from the Riksbank. However, it is not self-evident that these measures will actually be phased out.
Thomas Jordan: Monetary policy and uncertainty Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the University Freiburg im Breisgau, Freiburg, Germany, 15 January 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The economy is a complex system. Moreover, it is constantly changing as a result of technological advances and globalisation. Consequently, monetary policy operates in a very uncertain environment. The unforeseen and radical developments in the international financial markets emanating from the current crisis in the US housing and mortgage market have – once again – brought home the major role of uncertainty in monetary policy. We are uncertain about the exact way in which the economy functions, the current state of the economy and about future exogenous shocks. This uncertainty can express itself in the form of risk, with a known probability distribution. Alternatively, it may take the form of Knightian uncertainty, in which the probability distribution is unknown. It is the latter form of uncertainty which presents monetary policy with the greater challenges. Uncertainty is a reason why changes to the monetary policy instrument are generally applied only gradually and in small steps. However, if the economy is thought to be facing major threats, uncertainty may demand rapid and decisive action. Monetary policy decision-makers must be aware of uncertainty and the limitations of their knowledge.