Nyberg: In the wake of the financial crisis
On 18 November, Lars Nyberg held a speech under the title “In the wake of the financial crisis". Mr Nyberg stated that the current financial crisis illustrates, all too well, the problems that can arise when credit growth and asset prices develop at a rate that is not sustainable over the long term. The correction of these financial imbalances has very serious consequences for both macro-economic development and the functioning of the financial markets. In such a situation, the implementation of monetary policy becomes problematic and it has become necessary to complement traditional interest rate policy with various unconventional measures.
One lesson from the financial crisis is that there are serious shortcomings in regulation and supervision. Comprehensive work is being carried out around the world to improve these important functions. Another lesson is that the monetary policy models used must better simulate the roles in the economy of credit markets and asset prices, so that the consequences of financial imbalances can be analysed. Intensive development work is also underway in this area.
Mr Nyberg also addressed the development of the Swedish housing market and predicted no major problems over the short term, but added that there is reason for vigilance over the longer term. The increases in housing prices and in household debt in relation to income that we have seen over the most recent ten year period is not sustainable in the long term. The eventual normalisation of interest rates will entail large and rapid increases in households’ living costs and it is important that both borrowers and those handling lending consider this in their calculations.
Read the whole speech in the PDF file below.
