I can also see a case for reporting how votes are actually cast. This is, in fact, already the practice of the US Federal Reserve and the Bank of England. BIS Review 58/1998  -4-  Monetary policy and asset prices Finally some words about a matter that is not directly on the agenda for our discussions. I am referring to how monetary policy should respond to asset prices. The reason for bringing it up today is threefold. First, it is a matter that is widely discussed today in many international forums as well as in many central banks. Second, as a practitioner I would like to encourage our leading international experts present here today to study it further in the years to come in order to develop more knowledge in this area. It could be the topic for a future conference. My third reason is more personal. Before I came to Sveriges Riksbank I was state secretary at the Ministry of Finance and involved in the management of Sweden’s financial crises. The obvious question for me is why did it happen and how can we prevent it from ever happening again. I have already touched on the question of monetary policy’s target variable, which, as we all know, is a very complicated matter. An additional dimension is whether asset prices more formally should be included in the target variable for monetary policy? The question about monetary policy and asset prices is by no means new.
One conceivable explanation is that, having waited longer than other countries, the road back to price stability was more difficult for us. There were also a number of exceptional events along the way. What was perhaps the worst bank crisis of the century erupted in the wake of the 1980s’ bubble economy. Exchange rate turmoil was such that, during some dramatic days, the instrumental rate was hiked to 500 per cent. In the early 1990s the budget deficit grew to be the largest in the industrialised world. There are many similarities, as well as some differences, between the financial crisis in Sweden and those in Mexico and Southeast Asia. In recent years the situation in Sweden has become more stable and, with a resolute economic policy, developments have taken a positive turn. The bank crisis has been resolved, the economy is in an expansionary phase and inflation expectations are low. Step by step, the credibility of the new regime is being established. Experience in other countries clearly shows that the consolidation of a changeover to a low-inflation regime takes many years. Inflation target’s historical roots and advantages The idea of focusing monetary policy on price stability goes back, as I mentioned earlier, at least to Wiksell’s arguments a century ago. It seems to me that Wiksell’s emphasis on deflation being as important to avoid as inflation has much to do with the acceptance of this policy today.