Instead, it is claimed, it should have remained until now – and probably even longer – at the 0.25 per cent to which it was cut in July 2009. This assumption has then been used to calculate how much lower unemployment might have been if the Riksbank had not raised the repo rate.2 Of course, we can never know for certain what would have happened if we had acted differently. But what this argument appears to disregard is that when the Riksbank began to raise the repo rate in the middle of 2010, the situation was such that the Swedish economy had recovered surprisingly quickly from the crisis (see Figure 5). Growth was very fast, around 6 per cent for the first quarter when calculated as an annual rate, with a final outcome of more than 6 per cent for the year as a whole. Almost all indicators of economic activity were pointing upwards and the inflation rate was almost 2 per cent, in terms of the CPIF. The traditional reasons alone, without taking into account risks linked to household debt, gave a strong indication that it was time to begin increasing the repo rate. In addition, although lending to households had declined from double digits prior to the crisis, it was still increasing by 9 per cent, which was much faster than disposable incomes.
The Governing Council’s wide-ranging decisions of last week are geared towards this aim. They were based on the assessment that, in the current fragile market environment, the PEPP remains the best, and most effective, instrument to respond to the dual risks of a shortfall of inflation from our medium-term aim and of fragmentation in the euro area, which threatens the singleness of our monetary policy. The PEPP’s anatomy provides the flexibility – across time, jurisdictions and market segments – that is needed to effectively counter the specific challenges that COVID-19 poses. This flexibility is a key element of PEPP and will be maintained throughout its lifetime. Thank you. 1 See, for example, Autor, D. et al. (2017), “The Fall of the Labor Share and the Rise of Superstar Firms”, NBER  Working Paper Series, National Bureau of Economic Research, No 23396, May; and Gutiérrez, G. and Philippon, T. (2017), “Declining Competition and Investment in the U.S.”, NBER Working Paper Series, No 23583, National Bureau of Economic Research, July. 2 See Ari, A., Chen, S. and Ratnovski, L. (2020), “The dynamics of non-performing loans during banking crises: a  new database”, Working Paper Series, No. 2395, ECB. 3 See, for example, Vayanos, D. and J.-Luc Vila (2009), “A Preferred-Habitat Model of the Term Structure of Interest  Rates”, NBER Working Paper No. 15487. See also Krishnamurthy and Vissing-Jorgensen (2011, 2013) and D’Amico and King (2013). 4 Announcement effects are event-specific and may change over time.