Ingves: The role of the central bank after the financial crisis – the challenges ahead
In light of the financial crisis, new measures are now being implemented globally to prevent similar crises from reoccurring. A common factor of the changes in progress is that they aim to coordinate financial stability policy and monetary policy to a greater extent than before. This enables better possibilities of sustained price stability, while at the same time financial stability and a stable economic development are secured. This was asserted by Governor of the Riksbank Stefan Ingves in a speech given at the Swedish Economics Association on Wednesday.
Mr Ingves emphasised that the flexible inflation target policy has played an important role in both the relatively low and stable inflation, and the relatively stable GDP growth observed in Sweden and many other countries before the financial crisis. A lesson learned from the crisis, however, is that price stability does not suffice to achieve financial stability too. Monetary policy should therefore take account of financial stability aspects to a greater extent than before.
Furthermore, Mr Ingves discussed the emergence of macroprudential policy as a new policy area and the far-reaching change it involves in the preventive work of financial stability policy. Macroprudential tools bring better possibilities of strengthening the resilience of the financial system. Mr Ingves described these possibilities by exemplifying how various tools can be used to counteract risks associated with the indebtedness of Swedish households. Macroprudential policy also affects the impact of monetary policy, and enables managing the risks to the inflation target and economic activity brought about by a financial crisis better than is the case today.
Finally, Mr Ingves expressed that the Riksbank has solid fundamentals to take on the responsibility for macroprudential policy in Sweden. The Riksbank has extensive capabilities in terms of analysis of systemic risks and the links between the financial and the real sector. It would also involve realising synergies with monetary policy. This would thus better equip the Riksbank to conduct its price stability and financial stability tasks.
Read the entire speech.
