The view that the central bank should only react if the forecasts indicate problems may appear reasonable, but there are some uncertainties in this, particularly with regard to how this should be translated into practical policy. In situations where house prices and lending are rising very quickly, the central bank can see risks in this development, even if it cannot be sure whether a bubble is building up. It may then be difficult and even inappropriate to remain completely passive, even if the main line of the forecasts is that developments will be balanced. If house prices were then to plummet and pull down demand and inflation, the consequences could be very severe, which is clearly illustrated by the current financial crisis. The conclusion the Riksbank has reached with regard to monetary policy is therefore that this type of risk may need to be taken into consideration in a different way than the normal procedure, via the forecasts for inflation and the real economy. As indicated in the policy document "Monetary Policy in Sweden", this could be done by beginning a phase of interest rate increases slightly earlier than would otherwise have been the case, or by postponing a phase of interest rate increases. In addition, we highlight and warn against various types of risk, for instance in our speeches and reports. This was how we acted for instance in 2006.
It also becomes easier to work on prevention and in various ways to counteract a serious crisis from arising. The developments include methods regarding what are known as stress tests, which analyse what happens to the banks during various sequences of events and crisis scenarios. Such models are of course important tools when it comes to crisis exercises and to adapting our preparedness for managing real crisis situations efficiently. Challenges along the way A lot has changed, both compared with when I first began at the Riksbank and over the past six years. We have better conditions for managing various challenges so that we can attain our inflation target and safeguard financial stability in the best possible manner. It is also largely a case of learning by doing. I would therefore like to take up some of the challenges  BIS Review 155/2008  3  that we and other central banks have had to deal with in recent years. These are challenges we have learnt from when we were forced to deal with them. They are also challenges that in one way or another will stimulate future developments. Rising commodity prices,… In May of this year I held a speech on the upward pressure on international commodity prices that had been exerted for some time. This applied to both traditional commodities, such as oil and metals, and to foodstuffs, such as grain. The boom in commodity prices had pushed up inflation both here and abroad, and inflation was clearly overshooting our target.