Irma Rosenberg: My time at the Riksbank – some final reflections on challenges along the way Speech by Ms Irma Rosenberg, First Deputy Governor of the Sveriges Riksbank, at SEB, Stockholm, 8 December 2008. *  *  *  On a chilly day in January 1976 I crossed the threshold of the newly-built Riksbank building for the first time. It was true that all employees were moving into the new building that day, which contributed to the more or less organised chaos of furniture gone adrift and employees trying to find their new offices. But for me it was probably an extra special day. It was my first day at work. And it was my first job outside of the university after taking my PhD. Almost 33 years have passed since that day in January. And as I leave the Riksbank at the end of the year one could say that I have come full circle. It was where I began my career. In 1986 I left the bank, but in January 2003 I once again crossed the threshold at Brunkebergstorg 11, then as one of the six members of the Executive Board. This will now be my final full-time job. The years have been eventful ones, with more than a little drama from time to time.
Such interactions tend to amplify the amplitude of the bussiness cycle, thereby heightening the risk to financial stability. This description of procyclicality presupposes the existence of two cycles, namely the business cycle and the financial cycle, that interact and reinforce each other. However, economic and financial decisions underlying the two cycles are not independent. They are inherently linked by the risk-taking behaviour of economic agents: the behaviour which is prone to change in response to incentive, perception of risk, regulation, and new information. It is this change in risk-taking behaviour that explains large swings in investor sentiment, from a period of optimism when risk is disregarded to a period of pessimism when there is no willingness to  BIS Review 160/2009  1  take risk. And it is this change in risk-taking behaviour that underscores the abrupt change in financial behaviour, and in the direction and momentum of economic activities. It follows therefore that procyclicality is a mechanism that encompasses the interactions of at least three reinforcing cycles that move in tandem. They are the business cycle, the financial cycle, and the cycle of risk-taking beheviour represented by fluctuations in asset prices or the asset price cycle. The three cycles are self-reinforcing, and it is the ways the cycles interact with each others that define the amplitude and the momentum of the cyclical flunctuations, as well as risk of a financial crisis. Interactions of the three cycles can be illustrated with reference to a typical boom-bust cycle.