The main arguments against a more expansionary policy that have been put forward lately are that this type of policy would be too risky, given the size of household debt.3 Let me therefore use this argument as a starting point for my reasoning. The discussion among the Executive Board members to a large extent reflects a broader international debate on the relationship between monetary policy and financial stability, on whether household debt is too high and, if so, whether monetary policy should be used to try to limit indebtedness – although the Swedish debate does contain a number of specific characteristics. In brief, one can say that those who believe the repo rate should be held extra high appear to think as follows.4 If the interest rate is too low, households take on too much debt. A large share of the loans households take on are used to buy housing, which also pushes up housing prices. If indebtedness and house purchases are based on overly optimistic calculations, there is a risk of a heavy fall in housing prices when the mood changes, for some reason. If prices were to fall, many households would find themselves in a situation where their assets have substantially declined in value, while their debt remains unchanged. They may then want to pay off some of their debt to come down to a more suitable level. This means they will prioritise saving over consumption. Demand in the economy will then decline and unemployment will increase.
Lars E O Svensson: Monetary policy, debt and unemployment Speech by Prof Lars E O Svensson, Deputy Governor of the Sveriges Riksbank, at a meeting at SNS – Centre for Business and Policy Studies, Stockholm, 14 November 2012. *  *  *  I would like to thank Karolina Ekholm, Kerstin Hallsten, Per Jansson, Christina Nyman, Ulf Söderström and Anders Vredin for valuable discussions and comments. Mikael Apel, Gabriela Guibourg and Staffan Viotti have contributed to this speech. The views expressed are my own, and are not necessarily shared by the other members of the Executive Board or by other employees of the Riksbank. It can scarcely have escaped the attention of those who follow monetary policy in Sweden that the members of the Executive Board have held differing opinions for some time now. Most people have probably also noted that a minority of the Executive Board members – consisting of my colleague Karolina Ekholm and myself, in case anyone was not aware of this – has advocated a more expansionary monetary policy than the one that has been conducted and that the Riksbank intends to conduct in accordance with the repo-rate path advocated by the majority during the coming period. However, I am not as convinced that everyone has a clear idea of exactly what the differences of opinion entail.