More specifically, the origin of the financial crisis showed that even in a relatively calm economic environment it is possible for financial imbalances and risks to build up and lead to disruptions spreading throughout the financial system and causing substantial costs to society. After the financial crisis there has been intensive work around the world on producing tools that can be used to prevent these systemic risks from arising. And a largely new policy area has taken shape; macroprudential policy, which is responsible for these tools. In principle everyone agrees that this policy area is needed and it has begun to be implemented around the world with slightly different institutional set-ups. In Sweden, of course, Finansinspektionen (the Swedish financial supervisory authority) has been given the responsibility for the macroprudential policy tools. 1 On the other hand, the responsibility for the overall task of promoting a stable and smoothly-functioning financial system will be divided between Finansinspektionen, the Riksbank, the Government and the Swedish National Debt Office. So macroprudential policy is intended to be the first line of defence in counteracting financial imbalances that can affect macroeconomic and financial stability. There is broad agreement on this. The issue now being discussed internationally, and on which the jury is still out, is how strong this line of defence can be and whether other policy areas may at least sometimes need to contribute to counteract this type of risk. A more specific question is whether monetary policy should also take into account risks linked to financial imbalances.
The Riksbank is the only instance that has the express task of trying to ensure that the inflation target is met. Of course, the Riksbank also has the task of “promoting a safe and efficient payment system”, which should be interpreted as acting to ensure the financial system is stable and functions smoothly. But, as I have already pointed out, the latter is a task that the Riksbank shares with the Government, Finansinspektionen and the Swedish National Debt Office. Finansinspektionen has the responsibility for the macroprudential policy tools, which comprise the first line of defence with regard to counteracting the emergence of financial imbalances. As I have just mentioned, there is an international discussion on whether monetary policy may need to support macroprudential policy in certain situations. But I have also argued that one condition for this is that there is firmly-established confidence in the inflation target. It is this confidence that creates the scope for monetary policy to take other issues into consideration. Confidence in the Riksbank’s inflation target has long been fairly firmly rooted. But what has happened in recent years is that inflation has fallen to very low levels, instead of beginning to  6  BIS central bankers’ speeches  rise towards the target as the Riksbank and other analysts have expected. The period with an inflation rate below the target has thus gradually become longer and longer. Parallel to this development, the long-term inflation expectations among economic agents have fallen.