Some signs of this can be discerned; the latest figures suggest a minor blow to households’ expectations of Sweden’s economy, though this has not yet affected their personal economic expectations. There has been some fall in the growth of business credits. Another channel for effects on the real economy is the banking system. A more cautious supply of bank credits could dampen economic activity. In this respect the international turbulence gives cause for concern. The tendency in the late summer for investors to move to assets that were regarded as generally secure - a flight to quality - has developed into a general aversion to holding risk, with investors fleeing instead to assets that are more liquid. The economic fundamentals in particular countries are currently playing little part in investment decisions. This has hit some Third World countries very hard. The financial system in Sweden is monitored very closely by the Riksbank. The available statistics suggest that, compared with many international banks, Swedish banks are in a better position, with lower exposures to countries hit by the crisis. The picture also seems to be relatively good as regards exposures to hedge funds. This low exposure is probably a consequence of the bank crisis in Sweden in the early 1990s. So the risk of a domestically generated credit crunch should be small. Weak currency Besides increased uncertainty and greater risks of weaker economic activity, developments since the September Report was written have involved downward pressure on the Swedish krona.
Mr. Heikensten discusses monetary policy Address by the Deputy Governor of the Bank of Sweden, Mr. Lars Heikensten, at the Autumn Conference arranged by the Centre for Business and Policy Studies on 14/10/98. First a word of thanks for the opportunity to attend this meeting. The autumn conferences are a fine tradition to which it is a pleasure to contribute. On previous occasions I have used the opportunity to look back over the past year and discuss what the Riksbank has been doing, including how monetary policy is conducted. Then I have tried to look ahead and pick out some issues of importance for monetary policy in the longer run. My approach this year will be broadly the same. First a review of what has happened since last autumn, with comments on how the Riksbank’s assessment of inflation has evolved over the year. Then, as previously, a look at the question of how we communicate policy and how it has been perceived in financial markets. On this occasion we are in the throes of an international financial crisis, with great uncertainty as to what its real economic effects may be. Contagious effects of the crisis have gradually become larger and larger. Looking back, one can clearly see how the economic forecasts of most observers have swung during the year, from a phase of concern about a future increase in inflationary pressure to a phase of strong anxiety that the global economy will be hit by a recession.