BIS central bankers’ speeches  13  Mishkin, Frederic S. (2007), Housing and the Monetary Transmission Mechanism. In Housing, Housing Finance and Monetary Policy, Jackson Hole Symposium Conference Proceedings, 359-413, Federal Reserve Bank of Kansas City. Mishkin, Frederic S. (2011), Monetary Policy Strategy: Lessons From the Crisis. NBER Working Paper Series, no. 16755. National Bureau of Economic Research. Norges Bank (2013), Monetary Policy Report with financial stability assessment. 1/13 March. Nyberg, Lars (2005), House price developments and monetary policy. Speech at Evli Bank, Stockholm, 19 December. Sveriges Riksbank. Nyberg, Lars (2011), Monetary policy and financial crises – some reflections. Speech at Danske Bank, Stockholm, 21 December. Sveriges Riksbank. Svensson, Lars E.O. (2012), Monetary policy, debt and unemployment. Speech at SNS, Stockholm 14 November, Sveriges Riksbank. Svensson, Lars E.O. (2013a), Monetary policy and employment: monetary policy is too tight. Speech at the Swedish Trade Union Confederation, LO, Stockholm 13 January, Sveriges Riksbank. Svensson, Lars E.O. (2013b), The Possible Unemployment Cost of Average Inflation below a Credible Target. Working Paper. www.larseosvensson.net. Svensson, Lars. E.O. (2013c), Reservation against the Account of monetary policy 2012. Appendix B to the minutes, Minutes of the Executive Board meeting on 19 March, Sveriges Riksbank. Swedish National Debt Office (2013), consultation response to SOU 2013:6 Att förebygga och hantera finansiella kriser (Preventing and managing financial crises) (only in Swedish) – part report from the Financial Crisis Committee. Söderström, Ulf and Vredin, Anders (2013), Inflation, Unemployment and Monetary Policy. Economic Commentaries No 1 2013, Sveriges Riksbank.

When housing prices fall at a later stage, inflation will therefore undershoot the target substantially and unemployment will be far above its long-run equilibrium level. All in all, target attainment will therefore not be very good. The second alternative, as represented by the red line, entails a less expansionary policy that lets it take a little longer to return to the inflation target and reduces unemployment more slowly – and in the short-term perspective therefore leads to poorer target attainment. However, this policy also means that one avoids debt becoming excessively high and housing prices accelerating out of control. One thus also avoids the turbulence that arises from a subsequent fall in housing prices and target attainment is better in a longer-term perspective. This policy is usually described as monetary policy "leaning against the wind". It should be emphasised that this is of course an exaggerated and highly stylised example aimed at proving a point of principle. In reality, the deliberations we have to make are much more complex.9 Monetary policy is not a question of choosing between two alternatives that  6  Large debt levels can entail problems even if housing prices do not fall, as households become more sensitive to interest rate changes. See, for instance, the analysis on the discretionary income calculations in Financial Stability Report 2013:1, Sveriges Riksbank. 7  See, for example, Mian and Sufi (2011).