The prevailing international view during the great moderation was that financial crises could best be managed by monetary policy when they arose – this view has been described as the “Jackson-Hole consensus”. Another description of this view is that crises are managed by “mopping up afterwards”. This did not mean that there were no differing opinions, but as you know the advocates of these different views were talking to deaf ears. 11 However, the most recent financial crisis illustrates with great clarity the size of the costs of “mopping up afterwards”. In this context, it should be pointed out that the Riksbank warned about developments in the Swedish housing market long before the financial crisis. 12 This was in turn connected to the fact that we in Sweden had not in every aspect learnt our lessons from the 1990s crisis. One can say that the new stabilisation policy framework had given us control over public debt and inflation, but that there was no natural limit for indebtedness in the private sector. This led to the substantial increase in housing prices and household indebtedness we have seen – with a few brief intermissions – since the middle of the 1990s. The experiences of the global financial crisis have also led to extensive international regulatory work and to many countries now establishing new organisational structure and tools within what is known as macroprudential policy.
Negative repo rate and bond purchases – to safeguard the credibility of the inflation target The fact that we now have introduced a negative interest rate and begun purchasing government bonds in Sweden is basically because we want to safeguard the role of the inflation target as nominal anchor. I mentioned earlier that monetary policy should give consideration to financial stability. But this is because financial stability is a necessary condition for attaining stable inflation in the long run. Conditions for being able to give  23  For further information, see “Low global interest rates”, article in the Monetary Policy Report, October 2014, Sveriges Riksbank. See also Hamilton, D., Harris, E. S., Hatzius, J. and West, K.D., “The Equilibrium Real Funds Rate: Past, Present, and Future”, University of California at San Diego Working Paper, 2015. BIS central bankers’ speeches  9  consideration to financial stability in monetary policy decisions are that inflation expectations are firmly anchored around the target and that inflation is fairly close to the target. With hindsight, we can see that inflation has been lower than the Riksbank and most other forecasters had expected. And this doesn’t only apply to Sweden; inflation is very low in most developed countries. What happened in Sweden last year, when inflation continued to be lower than expected at the same time as inflation expectations continued to fall, has thus rather dramatically changed the conditions for monetary policy.