Balance sheet measures can be roughly 3/9  BIS central bankers' speeches  divided into two categories: purchases of long-term bonds and long-term extraordinary loans for banks. The objective of this balance sheet policy has been to further reduce the cost of long-term loans. The measure that has attracted most attention is central banks’ government bond purchases, frequently referred to as quantitative easing, or QE. The purchases pull up prices and reduce yields on these bonds. To the extent that the sellers of the bonds shift their demand towards other riskier securities, the yields on these securities could also fall. Central banks’ government bond purchases can also function as a signal that policy rates will remain low. Studies suggest that this policy has had an appreciable effect on interest rates and financial prices.5 The alternative monetary policy instruments have most probably also stimulated economic activity, pushed up inflation expectations and underpinned bank lending.6 However, it is difficult to estimate the strength and persistence of these effects more precisely. The choice of method and assumptions affect the results, and estimates diverge widely. A range of studies point out that unconventional monetary policy instruments are most effective in the context of market imbalances and when risk premiums are high. The effect appears to have diminished as interest rates and risk premiums have fallen or as policy rates have approached their lower effective bound.7 In the current environment of very low interest rates in many countries and prospects for slower growth, this gives cause for concern.
When the new framework for macroprudential policy is eventually in place and in use, the Riksbank will need to consider how it believes macroprudential policy measures will affect the development of the economy and financial stability in its forecasting work. The Riksbank should be able to take into account the effects of the macroprudential policy instruments in roughly the same way as it now takes into account how the government’s future budget plans will affect the economy. Gradual improvement in economic activity, but uncertainty remains I began this speech by looking back at the economic situation over the last few years. I would now like to spend the rest of my time looking forward. My second argument for leaving the repo rate unchanged at 1 per cent in July and September was namely that the economy seems to be taking a turn for the better. A gradual improvement in economic activity was indeed in line with the Riksbank’s earlier forecast, but ahead of the September meeting we had received additional statistics and other information that supported this assessment. For example, confidence indicators for Sweden and abroad had improved. Share indexes on the financial markets had risen thanks to positive signals about the recovery of the global economy. The outlook for a continued recovery in the United States was good and there were signs that an improvement had begun in the euro area.