Surveys of market participants’ expectations of systemic risk – the closest analogue to inflation expectations on the financial stability side – have subsided over recent years (Chart 7). How much of that is attributable to the new regulatory regime, rather than external factors, is at present unclear. Looking internationally, unlike with monetary policy, consensus has yet to be reached on whether regulatory policy should also be set independently from government. A recent IMF  52  Hammond (2012). 53  Hayek (1979). 54  Calomiris (2014). BIS central bankers’ speeches  9  study found only half of macro-prudential regimes internationally were operated by central banks, though a number of others were in the hands of independent regulators. 55 Perhaps with the passage of time that will change, as with monetary policy independence. Psychology suggests it should. Because the risk cycle is even longer than the business cycle, myopia biases are even more likely when tackling crises than inflation. The case for independence is at least as strong for regulatory policy as it is for monetary policy. 56 Hubris biases Under the UK’s new framework, decisions on monetary, macro-prudential and microprudential policy are made by Committee, rather than by an individual. Committee members are individually accountable and drawn from inside and outside the Bank. This structure provides some safeguard against over-confidence bias – for example, by diluting the influence of any one individual’s views on policy decision-making. There is evidence to support this in monetary policy decision-making.
All else equal and given that such a depreciation were to be permanent, the stimulus to the Swedish economy would be fully equal to the effect on the United States economy of the Federal Reserve’s interest rate cuts this spring. Against that background it is accordingly difficult to claim that aggregate monetary conditions in Sweden have become tighter, even though the Riksbank raised the repo rate last December and, most recently, at the beginning of July. I should point out here that it is not the krona’s current value that features in the Riksbank’s overall inflation forecast and monetary policy. What we use instead, as described in our Inflation Report, is an assessment of the krona’s future path. The krona’s future path is invariably a major factor behind the Riksbank’s inflation forecast. And it is the inflation forecast that forms the foundation for monetary policy. Thus, the development of the exchange rate, demand, inflation expectations and so on all affect the interest rate decision indirectly via the inflation forecast. It is never a simple matter to determine the path for the exchange rate in the coming one to two years that ought to be used in the assessment of inflation. But as long as all reasonable assessments point to the Swedish economy being in good shape, in the long term that should also motivate an exchange rate that is considerably stronger than we have seen in the past year.