In the alternative path that is assumed to represent a policy that does not lean against the wind, the repo rate would have been close to zero since July 2009, that is, for more than five years. This in an economy that began to recover from the crisis very quickly and where the temperature on the housing market cooled only temporarily. We can see today, when the repo rate has once again been cut to very low levels, that housing prices have begun anew to soar (see Figure 3).13 Lending to households increased by almost 10 per cent a year when the repo rate increases began in July 2010 (see Figure 4). And lending has begun to rise once again as the repo rate has been cut. Another important element here is that there was no framework for macroprudential policy for most of the time when the repo rate, according to this alternative, should have been at 0.25 per cent. It was not until August 2013 that the allocation of responsibility for macroprudential policy was clarified and the Swedish government had set formal guidelines for this.14 As yet, it remains to be seen how well this framework will actually work in practice. Given this, advocating a repo rate of 0.25 per cent for more than five years and entirely disregarding the risks of distorted expectations and problems with developments in housing prices is quite remarkable.
It would of course be unfortunate for the continued international discussion if the conclusion of the Swedish experiences were that when the policy of leaning against the wind was attempted in practice, it led to a very poor, or even catastrophic, result. Because this is not the case. 1  See, for example, Visco (2014) and Yellen (2014). 2  See, for example, Blanchard, Dell’Ariccia and Mauro (2013), Borio (2014), Carney (2013), Smets (2013), Stein (2013) and Woodford (2012). BIS central bankers’ speeches  1  Before I continue, I would like to make it clear that my purpose here today is not to justify every single decision the Riksbank has made. It is natural that different observers make different assessments regarding economic developments and thus reach slightly different conclusions regarding what exact policy should be conducted. With hindsight, it is clear that monetary policy could have been somewhat more expansionary if we had known that inflation would be as low as it is now. This is a natural and unavoidable consequence of the fact that monetary policy has to be based on forecasts, which are uncertain. However, most of the recent criticism has gone far beyond discussing this type of difference in assessments. Instead, it has claimed that the policy conducted by the Riksbank was wrong on a more fundamental level. This is the type of criticism I intend to focus on here.