This is thus an example of a situation where raising the policy rate will if anything increase the risks to financial stability. 10 Using policy rate to influence housing prices is costly There are also many references to developments in housing prices in the monetary policy debate. Monetary policy would appear to have very little effect on housing prices. If one nevertheless uses the policy rate to influence housing prices (and thereby mortgage growth) this will lead to large costs to the real economy. A study by Claussen, Jonsson and Lagerwall (2011), which is included in the Riksbank’s inquiry into the risks in the Swedish housing market shows, for instance, that it would have been very costly in terms of both production and inflation to try to prevent the upswing in housing prices from 2004 onwards using monetary policy. Keeping housing prices at a long-run trend level in 2004–2010 would have required repo-rate increases over several years of up to 5 percentage points in both 2006 and 2007. GDP growth would then have been on average almost 2 percentage points lower up to 2010, which corresponds to an accumulated GDP loss of around 12 per cent. CPIF inflation would have been on average 3 percentage points lower during the same period. The study confirms for Sweden what several other international studies have concluded, such as Assenmascher-Wesche and Gerlach (2010).
…  6  BIS central bankers’ speeches  I therefore consider it important that monetary policy is conducted in a clear and comprehensible manner so that it can be evaluated easily and fairly. At present, the Riksbank makes a qualitative assessment of resource utilisation based on a number of different measures. This contributes to making the justification for the monetary policy decisions unclear and it also makes it more difficult to assess the Riksbank and hold it accountable. I thus instead want to focus on stabilising unemployment around a long-run sustainable rate and not on trying to stabilise a number of other, quite shaky measures of resource utilisation in the economy, such as the output gap. Compared with other measures of resource utilisation, unemployment has a stronger link to household welfare, is better understood and more familiar to the public, is measured often and with fewer errors and is seldom revised. The fact that other measures of resource utilisation are not appropriate as targets for monetary policy of course does not prevent them from playing an important role as indicators when assessing inflationary pressures and constructing inflation forecasts. Nor do I see that there is any support for a qualitative assessment of resource utilisation instead of a quantitative, measurable target fulfilment. In economic policy it is now wellknown that targets must be measured quantitatively to obtain sufficient weight and to be fulfilled in practice. “What is measured gets done,” as they say.