Forecasting memory, GDP Percentage points 0,5 Riksbank Time series model (AR(1)) Standard deviation 0,4  0,3  0,2  0,1  0,0 1  2  3  4  5  6  7  8  Kvartal  Sources: Statistics Sweden and the Riksbank  BIS Review 138/2007  9  Figure 6. Forecasting memory, employment Percentage points 0,5  0,4  0,3  0,2 Riksbank Time series model (AR(1)) Standard deviation 0,1  0,0 1  2  3  4  5  6  7  8  Kvartal  Sources: Statistics Sweden and the Riksbank  Figure 7. Forecasting memory, productivity Percentage points 0,7  Riksbank Time series model (AR(1)) Standard deviation  0,6  0,5  0,4  0,3  0,2  0,1  0,0 1  2  3  4  5  6  7  8  Kvartal  Sources: Statistics Sweden and the Riksbank  10  BIS Review 138/2007  Figure 8. Forecasting memory for the KPIX Percentage points 0,7  0,6  0,5  0,4  0,3  0,2 Riksbank Time series model (AR(1) with seasonal dummies)  0,1  Standard deviation 0,0 1  2  3  4  5  6  7  Kvartal8  Sources: Statistics Sweden and the Riksbank  Figure 9.
The core of the discussion is that house prices and lending sometimes develop in a way that does not appear sustainable – in a way that entails risks that are difficult to quantify or to even capture in analyses and forecasts. These are risks of events that often have a low probability of occurring, but if they do occur could have very serious consequences for the economy. So what is so special about asset prices rising and why do “bubbles” arise? Rising asset prices are not necessarily a bubble… The prices of many assets, such as houses or shares, rise and fall in cycles. And asset prices can rise substantially without this entailing an over-estimation or a financial bubble. A  BIS Review 70/2010  1  bubble is among other things based on speculation and a strongly over-optimistic view of the future. If, for instance, property prices increase substantially this may actually be justified on the basis of fundamental driving forces and realistic views of the future. Factors such as growth, incomes, construction and housing costs may develop favourably. And if one does not, for instance, build new housing at the same rate as the demand for housing increases, then it is not exactly surprising that the price of the existing housing should rise. Even if prices soar during a brief period, grey reality usually catches up before a bubble has arisen. When this happens prices usually adjust without any great drama and do not have any major effects on the rest of the economy.