Ingves: Central bank policies – the way forward after the crisis
The most important conclusion from the financial crisis is that one must give greater consideration to developments in debt in the economy. Different countries are currently choosing slightly different ways of doing this. These comments were made by Governor Stefan Ingves on Friday in a speech at the Royal Bank of Scotland in Stockholm.
The Riksbank was one of the first central banks to explicitly include the risks inherent in financial imbalances, such as developments in household debt and housing prices, in its monetary policy agenda, and it has also conducted a policy that takes these risks into account. This policy has been well in line with the international debate following the crisis and also fully compatible with the task of keeping the macro economy in balance, said the Governor.
However, he observed that stabilising economic activity and attaining the inflation target and at the same time taking into account risks linked to indebtedness with only one instrument, the repo rate, is a difficult task. The international debate following the crisis has therefore to a large extent revolved around how the new policy area, macroprudential policy, can be designed to prevent and manage financial crisis in the best possible way.
Many countries have already made considerable progress in designing a framework for macroprudential policy. In Sweden it was unclear for a long time what kind of framework the politicians wished to have, but a few weeks ago the Government came to a decision. Many details still remain to be decided, but it is clear that Finansinspektionen (the Swedish Financial Supervisory Authority) will have the main responsibility for macroprudential tools.
It is good that the allocation of responsibility has now been clarified and that responsibility will lie with one authority, said the Governor. He went on to say that other countries have chosen different solutions, but only time will tell which works best.
There are however some questions that may require further consideration. This applies, for instance, to clarifying the relationship between macroprudential policy and monetary policy and whether there may be situations in which monetary policy requires support from monetary policy.
"I am convinced that we will succeed in this task, with joint efforts and as we gain greater knowledge of how the new framework for macroprudential policy functions in practice", concluded Mr Ingves.
Read the entire speech: Central bank policies – the way forward after the crisis
