The answer is no. The financial crisis casts a long shadow. Both household and corporate debt levels have declined significantly, with the household debt-to-income ratio around the 2005 level and the corporate debt-to-GDP ratio at its lowest since mid-2004. But there are significant pockets of financial fragility, with some of the households that bought and borrowed at the peak of the market still facing very heavy debt service burdens. And even though public debt is now on a declining path relative to GDP, it is very high in historical terms, which remains a vulnerability. The biggest legacy problem, though, is the capital controls. During the early stages of the crisis, the controls were helpful in stabilising the economy and providing the shelter needed to repair balance sheets and rebalance the economy. But over time – and increasingly, as the economy and the rest of the world recover – they begin to turn into obstacles to economic growth. 4  BIS central bankers’ speeches  The problem is that there are big obstacles to speedy removal of the capital controls. First, we have short-term króna assets in the hands of foreign residents, so-called offshore krónur, which currently amount to 15% of GDP, after having been reduced by more than half since the capital controls were introduced (see Figure 10). But more importantly, we have domestic assets held by the estates of the old banks.
Although equity and property prices serve as important indicators for the future development of economic activity, they are not a goal of monetary policy. Many reasons militate against a direct monetary-policy response to changes in asset prices. The question nevertheless arises as to whether monetary policy could not do more to prevent any speculative bubbles from forming in the first place. BIS Review 53/2003  1