I am thinking instead of, for example, Mexico, Indonesia, Thailand, South Korea, Malaysia and Brazil. In these cases, inflated asset prices and both domestic and external debt had an important bearing on the subsequent course of events. One important lesson is that a floating exchange rate with an explicit inflation target makes it easier to avoid a situation with rapidly rising asset prices, an unduly strong expansion of credit and high short-term borrowing abroad. That does not mean that a fixed, but adjustable, exchange rate is bound to result in problems of this type. Experience from Denmark is a good example. A clear problem in Sweden’s case, however, was that in the 1980s monetary policy could not be used to counter the tendencies to strong credit growth and rapid asset price increases. Another problem, as I just mentioned, was that the fixed exchange rate policy lulled people into a false sense of security and provided an incentive for short-run borrowing in foreign currency. With a floating exchange rate, the krona’s fluctuations make the exchange risk more evident (Diagram 2). Such a regime may have other drawbacks but it does show potential borrowers that foreign-currency loans involve a risk. The stock of foreign-currency loans to households and firms is in fact smaller today than it was a decade ago. A point to bear in mind is that the problem in the late-1980s was not the strong asset price rise as such but the combination of this and heavy borrowing in Sweden and abroad.
It is to encourage banks to lend to corporations, SMEs and households alike; similarly, extending the asset purchase programme to corporate bonds will be of particular benefit to large French corporations. In other words, we are securing the provision of credit to businesses and households, and protecting it from tensions linked to market volatility. c) Now, what about the risks? I talked earlier about the risks of doing nothing: we need to take action in order to bring inflation back up towards 2%. That said, we also need to keep a close eye out for any possible negative side-effects of our monetary policy, notably for financial stability. We are actively monitoring the financial cycle, including in France where the task falls to the High Council for Financial Stability set up in 2013. I took part in its 8th meeting at the Finance Ministry last week. For the time being, there are no signs of bubbles forming in our main financing markets: on the whole, developments in the equity markets appear in line with corporate profit forecasts, while evolutions in bond yields also seem consistent with the outlook for inflation and growth. Nor are there any signs of excessive credit growth in the financial system. Nevertheless, we remain vigilant over all aspects of the current macroeconomic and financial environment.