And it is warning signal when banks have to run to securities markets to finance growth faster than deposits alone allow them to do. Systemic risk increases when imbalances build up. Macroprudential policy is designed to address the systematic features of financial crises, strengthen bank resilience and curb the probability of a crisis. Policy rules and transparency are aimed at avoiding complacency in good times. For example, the Basel III framework specifies that the ratio of credit to GDP should be a conditioning variable when setting the level of the countercyclical capital buffer for banks. The authorities must explain and justify their actions, or their inaction. If banking regulation is to be effective, not only must we be able to identify imbalances that are building up, but we must also understand the interaction between banks and other economic agents and how systemic risk arises. Lessons from the 1960s and 1970s showed that detailed regulation was not very effective. If we are to intervene in the markets, we must understand how the market functions and why the market cannot be left to its own devices. This provides a basis for regulating markets and insight into regulatory effects. From the textbooks we are well aware of the ingredients of market failure – or the preconditions for regulating markets. Environmental economics is often used as an example. If a polluter does not bear the costs it inflicts on others, a fee should be imposed on the polluter.
The shift may be in the order of one-half of a percentage point. This is the change that lies behind the common, but not entirely certain, estimate that nowadays the Swedish economy can maintain an annual growth rate between 2% and 2.5%. But Swedish data do not yet provide any definite evidence of an improvement in productivity, and hence in potential growth, that corresponds to what has happened in America. It does seem likely, however, that the rapid advances in information technology will also have a major impact on future production and distribution processes in Sweden. Sweden is well to the fore in Internet applications. Still, when and to what extent these factors will affect growth in general is not yet clear. But even though appreciable general economic consequences cannot be discerned at present, the tendencies are worth considering. Some parallels can perhaps be drawn with the situation over a century ago, when Sweden was being transformed fairly rapidly from a poor European country into a dynamic and strongly expanding industrialised economy. There are also lessons to be learned from developments in recent decades. Monetary policy’s task well defined The current monetary policy conclusion is unequivocal and there seems to be broad agreement about the task that monetary policy faces. So today I should like to discuss developments in the Swedish economy in a wider perspective that is not an immediate concern for monetary policy but may have to be considered some time after the turn of the millennium.