Changing the regulation too late will contribute more towards making the fall greater than braking the build-up of the imbalance. Neither do we have much practical experience of using regulations to prevent bubbles – even if it should be mentioned that we actually do not have particularly much experience of using policy rate increases for that  BIS Review 68/2010  17  purpose either. Consequently, it may be difficult to determine the appropriate “dosage”. One potentially fairly serious problem with regulations is that experience has shown us that it is relatively easy to circumvent them. Possibilities for regulatory arbitrage can be particularly great when the regulatory framework is applied in a more differentiated manner. The role played by the “shadow banking system” in this crisis is an example of the consequences of circumventing regulations. Is a combination of policy rate and regulation needed? I mentioned earlier that it seems as though more and more are advocating that something may need to be done when it seems as though a credit-driven imbalance is building up. I do not believe that the increasing popularity of this view has so much to do with the fact that the identification of an excessive credit expansion is now considered to be easier. Neither is it because we have identified tools that can effectively and accurately brake an unsustainable credit growth. Rather, I believe that it is due to society’s increased unwillingness to live with the real economic risks entailed by such imbalances.
BIS Review 68/2010  3  Figure 3 Different measures of resource utilisation Per cent 6  6  4  4  2  2  0  0  -2  -2 -4  -4 The Riksbank, April -10 NIER, M arch -10 European Commission, M ay -09 OECD, November -09 IM F, April -10 M inistry of Finance, April -10  -6 -8 -10 00  02  04  06  -6 -8 -10 08  10  12  14  Monetary policy has contributed to increased macroeconomic stability The trend towards inflation targeting, or policies resembling inflation targeting, and increased openness and clarity has had positive results. In Sweden and other countries affected by high and fluctuating inflation during the 1970s and 1980s, inflation has become lower and more stable. Similarly, inflation expectations have been significantly better anchored than before (Figure 4). In these cases, I believe that countries with explicit, quantified inflation targets have had a particular advantage. These days, actual inflation can differ quite considerably from the inflation target, for example due to temporary increases in energy prices, without households and companies finding it particularly alarming. They rely on the Riksbank to return inflation to target within a couple of years.