10  I also believe that the policy rate is an inappropriate instrument for handling problems relating to rising housing prices and indebtedness. There are several other, more appropriate instruments, for example loan-to-value ceilings, limiting tax deductions for mortgages, property taxes and so on. Extensive research has also shown that the costs to the real economy will be unreasonably high if one attempts to reduce housing prices with the help of the policy rate. In addition, there are no signs that Swedish housing prices constitute a bubble, that is that they are incompatible with fundamental factors such as high demand and low supply as a result of limited construction. It can also be demonstrated that the current level of indebtedness is not a problem in relation to the household’s ability to service their debts and to their assets. For a more detailed discussion, see Svensson (2010b, c). 6  BIS central bankers’ speeches  balanced in the initial position, for example if it appears that both inflation and resource utilisation will be too low, then increased growth is not a reason to tighten monetary policy. 11 Growth can lead to bottlenecks and a shortage of labour in some sectors. Are these reasons for increasing the repo rate? Yes, but only if they increase the inflation forecast. Circumstances such as bottlenecks and shortages are important when it comes to assessing the effects on wages and inflationary pressures, and to forecasting wages and inflation.
Strotz, R.H. (1955–56), “Myopia and inconsistency in dynamic utility maximization”, Review of Economic Studies 23, 165–180. Svensson, Lars E.O. (2005), “Monetary Policy with Judgment: Forecast Targeting”, International Journal of Central Banking 1(1), 1–54 Svensson, Lars E.O. (2010a), “Inflation Targeting”, published in Friedman, Benjamin M., and Michael Woodford, eds., Handbook of Monetary Economics, Volume 3, Elsevier. Svensson, Lars E. O. (2010b) “Some problems with Swedish monetary policy and possible solutions” speech held in Stockholm, 2010-11-24. Svensson, Lars E.O. (2010c), “Monetary policy after the financial crisis”, speech held in Tokyo, 2010-09-17. Svensson, Lars E.O. (2010d), “Why a lower repo-rate path? ", speech held at Umeå University, 2010-02-24. Svensson, Lars E.O., and Robert J. Tetlow (2005), “Optimal Policy Projections”, International Journal of Central Banking 1(3), 177–207 Sveriges Riksbank, (2010), Monetary policy in Sweden. Sveriges Riksbank (2011a), Monetary Policy Report: February 2011. Sveriges Riksbank (2011b), “Minutes of the monetary policy meeting”, no. 1, 2011-02-14. 10  BIS central bankers’ speeches  BIS central bankers’ speeches  11  12  BIS central bankers’ speeches  BIS central bankers’ speeches  13  14  BIS central bankers’ speeches