In recent years, house prices and household borrowing have increased rapidly, partly as a result of low interest rates. We have stated that we feel some concern that this development may go too far, with a risk of severe adjustments in the future. One risk is that a sharp brake in house prices could lead to households perceiving their debt burden to be too high, and that they would therefore quickly increase their saving. This could lead to a severe decline in demand in the economy and in inflation. In the considerations behind our decision on the interest rate at the beginning of the year, we considered these risks to be one reason for not postponing an increase by a few months - which I otherwise believe would have been fully possible given the forecasts we otherwise make and the precision of these forecasts. I would not like to claim that this is necessarily always the optimum means of managing this type of risk in monetary policy considerations. The relationship between credit volume and asset prices on the one hand and monetary policy and the real economy on the other hand has not yet been sufficiently mapped to be able to draw any clear policy conclusions. In addition, our experience of deregulated financial markets is still limited to a small number of economic cycles. At the same time, we cannot ignore the risks to future inflation and economic activity with which we believe that developments in the housing market are connected.
Private savings for financing higher education should increase considerably. Finally, in addition to openness and the culture of risk-taking, a competitive society needs responsible macroeconomic and financial management. Indeed, stable money, low and predictable inflation, and fiscal responsibility are probably the most essential public goods governments and central banks can provide over a short term to support innovation. It is equally well known that market-based access to finance enables to quickly mobilise necessary funds for innovation. Single financial market supported by common infrastructure plays an essential role in increasing the competitiveness of the European Union. Ladies and Gentlemen, let me once more welcome you to Tallinn. I wish you a successful and thought provoking conference. 2  BIS Review 63/2007