The stabilisation policy conducted was on the whole too expansionary to be consistent with the monetary policy regime of the time, the fixed exchange rate, and eventually the fixed exchange rate had to be abandoned. I would like to point out that these are not some “homemade” ideas and theories. There is an international discussion, which does not seem to have received much media attention in Sweden, that the policy rate may have a role to play even when macroprudential policy is in place.13 It is also worth emphasising that in several of the countries that have come through the crisis well – those who, like Sweden, are up in the right-hand corner of Figures 1 and 2, and currently facing the same problems as us with regard to debt and the housing market – they are quite specific about the policy rate being an important variable in this context.14 But the supply side of the housing market is also crucial However, the question is whether even macroprudential policy and monetary policy in collaboration are sufficient to achieve a long-term solution to the problems. It is likely that an even broader intervention is needed. Macroprudential policy and monetary policy focus on the demand side of the housing market – by trying to dampen household demand for credit or through the banks restricting their lending. However, the supply side of the housing market is also of central importance in this context.
But usually one is then comparing it to countries that have been hit harder by the crisis, such as the United States and the United Kingdom, where housing prices have already fallen substantially and one therefore does not need to worry so much about a continued upturn from an already high level. Moreover, the relationship between the policy rate and credit growth, which is of course important in this context, is not straightforward. Figure 3 shows, for instance, that credit growth in Sweden is higher than in the euro area, despite the Riksbank’s policy rate being higher than the ECB’s. The Riksbank’s strategy has been to combine a marginally higher repo rate with communication that emphasises that we find the development of high credit growth worrying. The slightly higher interest rate does have some effect in itself, but perhaps its main function is as a concrete “reminder” of the risks, making it an important part of the communication. One may of course discuss how effective this type of policy is. However, I am fairly certain that, combined with the measures taken by Finansinspektionen (the Swedish Financial Supervisory Authority), it has had at least some effect in the desired direction – that both indebtedness and housing prices in recent years would otherwise have increased more and faster than they actually have done. I am even more convinced that the policy and the communication surrounding it have helped increase awareness of the problems.