There are several reasons for this. One is that it may very well prove difficult to design a system for macroprudential policy that functions efficiently and which inventive market participants are not able to circumvent. The policy rate is a blunt instrument, as it has a broad  10  To mitigate these problems the European Systemic Risk Board (ESRB) recommends the EU countries to use a set of intermediary targets, see ESRB (2013). These provide some assistance but do not solve the fundamental problems. 6  BIS central bankers’ speeches  impact on the economy. But at the same time, this may be a strength compared with the macroprudential tools, simply because it is difficult to avoid a policy rate increase.11 Another reason is that if monetary policy is very expansionary over a long period of time, this could contributed to creating incorrect expectations in society regarding how high policy rates will be in the coming period, and how the housing market will develop.12 In this type of environment it may be difficult for macroprudential policy to do the job alone. The assertion that policy areas need to interact and support one another – and that things can go badly if they don’t – is not particularly strange. A clear example from a Swedish point of view of diverging policies causing problems is the developments that led up to the crisis in the 1990s.
This in turn has led to a fall in demand that has tended to be fairly long-lived.4 In many areas, households and companies have moreover experienced difficulty in meeting their loan obligations and the banks have suffered loan losses. The much weaker economic activity and a banking system in need of support have in turn led to a tangible deterioration of public finances. The final result of the high indebtedness and overheated housing market has thus been macroeconomic instability in the form of a deep and prolonged recession. Moreover, monetary policy in many countries has become less effective as the policy rate has reached its lower bound and central banks have had to turn to new and untried methods of conducting monetary policy, and also because households have reacted less than normal to monetary policy stimulus, as they have given priority to consolidating their balance sheets.5 Trying to prevent this type of development with substantial macroeconomic instability must indeed be part of the Riksbank’s task. As I have already noted, one can make different assessments of how great is the risk that this negative scenario will occur and thus of the policy that should be conducted. But arguing that it is not in the Riksbank’s mandate, as a matter of principle, to take into account this type of risk and reduce it to the best of our ability – that I find quite difficult to comprehend.