Undoubtedly, liquidity expansion was a necessary condition for accelerated credit growth, as it usually happens during expansionary periods. Current account surpluses of emerging countries and of commodities exporters came on top of this increase in liquidity. Besides, this process took place within a context of an aggressive search for yields and financial innovation. One could even argue that the mortgage boom in the United States was partly caused by the monetary easing (Taylor, 2008). Moreover, there is evidence that, in developed countries, the larger the monetary policy excesses, the larger the mortgage booms (Ahrend et al., 2008). Notwithstanding the above, although liquidity is needed to generate credit expansion and bubbles in asset prices, by no means can it all by itself generate a crisis such as this one. In developing countries, we know very well that when a cyclical downturn is combined with a financial crisis, its effects are much deeper and longer. Actually, during this same period, economies with the same degree of expansiveness in their monetary policy and credit accelerations, but with sound financial systems, have not increased their vulnerabilities. We ourselves are an example of this (Figure 1). Between 2001 and 2004, a strong reduction of the Monetary Policy Rate (MPR) took place in Chile, and it did not cause a bubble in housing prices nor did it weaken the financial system.2 The reason why there was no housing price bubble in Chile needs further analysis.
As it will usually be a question of taking measures that are unpopular – for example limiting the possibilities of households to borrow money in a way that will restrict their choices about where they can live, or limiting the possibilities of financial companies to earn money – it is vital that someone is made responsible for ensuring that the measures are actually taken. This may well be, as the Commission suggests, the Riksbank or Finansinspektionen. However, I am sceptical about both authorities being responsible, as it will be all too easy to blame each other when a crisis actually develops.18 It is of course natural for the Riksbank to play a central role in macroprudential policy, as financial stability is a precondition for macroeconomic stability and risks to financial stability are therefore analysed on an ongoing basis.19 However, a responsibility for macroprudential policy may potentially come into conflict with the independence the Riksbank has in the field of monetary policy. This is an independence based on the realisation that a politicallygoverned monetary policy tends to be inflationary, as it may be tempting for political reasons to renege on a promise of low inflation and to conduct a more inflationary monetary policy that reduces unemployment in the short-term.20 However, independence goes hand in hand with a clearly-defined objective for monetary policy that can be constantly evaluated. Macroprudential policy is different in nature, as the objective is to prevent crises.