A common view has been that monetary policy should only react to a rapid credit expansion and price increase in the housing market if the forecasts made by the central bank indicate problems of, for instance, overheating and too high inflation in the coming period. If this is not the case, the central bank should wait and see, but be prepared to quickly ease monetary policy if the housing market were to collapse and demand in the economy were to fall drastically. One should not, as the expression goes, “lean into the wind”, but make do with cleaning up afterwards if problems arise. 4  BIS Review 155/2008  The main argument in favour of this way of acting is that the central bank is not better than others at assessing whether or not the price increase is due to over-optimistic calculations – if a bubble has arisen. If the bank makes the wrong assessment and raises the interest rate despite the events being justified by fundamental factors, demand will be pushed down unnecessarily. And even if the central bank were to be sure that the problem is overvaluation, the timing of the measures may be problematic. The hope is, of course, that tighter monetary policy will contribute to counteracting an imbalance. But if the central bank acts too late and, for example, raises the interest rate just before a bubble would nevertheless have burst of its own accord, monetary policy may instead contribute to worsening the fall in demand.
Our policy works much better and more efficiently when we are open and clear about our objectives and the reasons for our decisions. An important piece of the puzzle is that we now have a "direct” and clear inflation target. Although the fixed exchange rate was aimed "indirectly” at providing low and stable inflation, this was not really as clear. But with a fixed exchange rate monetary policy is also governed by external events, which has both advantages and disadvantages. Up to the beginning of the 1990s, the Riksbank was on the whole a closed and rather secretive institution, just like most other central banks at that time. Today the situation is the opposite. We are now considered one of the world’s most open central banks. The fact that an independent authority must provide opportunities for insight and evaluation is natural in our society. Another aspect that may be of importance is that the openness puts a little extra pressure on us to develop and do our job as well and as efficiently as possible. And I can note that our methods have changed substantially. Willingness to change and rapid development in our working methods The fact that a lot has happened since the mid-1970s when we sat and drew diagrams and forecasts by hand on graph paper is not surprising. But even during my period in office the last six years our methods of working have shown a rapid development.