This relates to an international discussion on whether the policy rate can play a role in stabilising the credit cycle, even when macroprudential policy is in place. 16 One reason why it might play a role is that it can be difficult to design a system for macroprudential policy that functions efficiently enough and cannot be circumvented by innovative market participants. If, for instance, the policy rate is kept low for a long period of time at the same time as macroprudential policy is relatively restrictive, there is a risk that a grey credit market will arise. The interest rate is of course a blunt instrument to use in stabilising the credit cycle, as it has a broad impact on the economy and a substantial effect on the economic cycle. However, one advantage of the broad impact of the policy rate is that it is therefore difficult to “avoid”, even for those who might be able to circumvent macroprudential policy. 17 Some countries are also fairly explicit about giving the policy rate a role to play in subduing the credit cycle, as a complement to macroprudential tools. 18 In the same way as macroprudential policy can help ease the pressure on monetary policy, monetary policy can give support to macroprudential policy by leaning against the wind. Thus, there are a number of questions regarding the interplay between macroprudential policy and monetary policy that require further consideration.
Figure 1 is a good basis when one wants to illustrate different questions regarding monetary policy and central bank operations that have arisen due to the crisis and are now being discussed both internationally and in the debate here in Sweden. The perception prior to the crisis could be described, in a rather simplified, but not misleading, manner as central banks in principle being able to disregard the credit cycle and focus solely on the economic cycle. It was assumed that those cases in which the credit cycle pulls down the economic cycle, which were presumed to be fairly rare, would be relatively easy to manage. Correspondingly, the current international discussion on how central banks should act from now on – the question I began with – can essentially be about how one should take the credit cycle into account in a good way and incorporate it into the economic analysis and into practical policymaking. As the origin of the economic recession is the earlier excessive credit boom, much of the focus is on the question of how one can best ensure that this increase in credit becomes more balanced and that the credit boom thus does not go wrong. It is not merely a question of avoiding crises.