Before the crisis, the most common view among central bankers was that monetary policy should only react to sharp increases in indebtedness and asset prices if these could be expected to lead to overheating in the economy as a whole and thus to a too high rate of inflation. Otherwise, the central bank should wait-and-see before adjusting monetary policy, but be prepared to quickly cut the policy rate if a burst asset-price bubble initiates a dramatic fall in demand in the economy. However, this view has been called into question recently. Many observers, including myself in one of my first speeches as a member of the Executive Board, have asked themselves whether monetary policy shouldn’t also be used to counteract the development of bubbles. 4 Would it have been possible, for example, to prevent this financial crisis if monetary policy had been tighter in the United States in the years leading up to 2007, when the problems on the US financial market began? As can be seen in Figure 1, the actual real policy rate was relatively low in this period. However, it is doubtful whether a higher policy rate would have been able to bring growth in property prices and credit to a more moderate pace in the United States without driving the economy into a recession at the same time. 5  2  See for instance BIS (2012): European bank funding and deleveraging, BIS Quarterly Review, March 2012.
It is seldom possible to demonstrate clear effects of interventions and that could not be done on this occasion, though the depreciation was broken during the day in question. Later in the autumn the krona appreciated again. BIS Review 111/1999  2  It seems to me that two main factors lie behind the krona’s appreciation in the past twelve months. One is a normal rebound from last autumn’s excessive weakening. This happened during the winter and was particularly pronounced because the euro’s introduction at the beginning of the year had made some investors concerned about the krona. The other factor is the increasingly clear picture of a strong economy with a budget surplus, low inflation and high growth. Moreover, the higher growth in Sweden compared with the euro area has influenced appraisals of the respective levels of interest rates. Specific events and statements may have played a part in the timing of the appreciation but it seems to me that the crucial influence has come from more fundamental economic considerations. The discussion of monetary policy has also acquired a new dimension. The procedure with the new Executive Board from the beginning of this year enables Board members to differ from the current majority view of inflation prospects and monetary policy measures. Board members have in fact differed on a number of occasions, as is clear from the published minutes. On two occasions, divergent opinions have also been registered regarding the level of the repo rate.