The tendency to leak will of course be higher the greater the tension is between the policy rate and the shadow interest rate that ensues from the regulations and the longer the interest rate differential lasts. 3 [21]  economy and how great the cost is of the crisis that is possibly avoided or mitigated. To investigate this, theoretical models and simulations in quantified models have been used. 8 It is perhaps not particularly surprising that whether it is considered a good or a bad idea to use monetary policy to counteract financial imbalances largely depends on the assumptions made and how the model is designed. My interpretation of the literature is that it is not leaning clearly in either direction. 9 Taking a step away from the research literature, what does it look like in practice? As academic research has not come to any clear conclusion, it is perhaps not so surprising that central banks have slightly different opinions. Many central banks, for example the US Federal Reserve, seem sceptical to using the policy rate to counteract financial imbalances, other than possibly as an absolutely last resort, if nothing else proves effective. 10 But there are also central banks that have made a “leaning against the wind” policy into an integrated part of the monetary policy set-up. Perhaps the clearest current example is Norges Bank. Norges Bank’s remit refers, on the one hand, to regulations and the supervision of financial institutions being the most important means of preventing shocks in the financial system.

Krugman, Paul (2014), “Inflation Targets Reconsidered”, essay presented at the ECB Sintra conference, May. Lilley, Andrew and Kenneth Rogoff (2019), “The Case for Implementing Effective Negative Interest Rate Policy”, essay presented at “Strategies For Monetary Policy: A Policy Conference”, The Hoover Institution, Stanford University, May 4, 2019. Lindbeck Assar, Per Molander, Torsten Persson, Olof Petersson, Agnar Sandmo, Birgitta Swedenborg and Niels Thygesen (1994), Turning Sweden Around, MIT Press. Nyberg, Lars (2005), House price developments and monetary policy. Speech at Evli Bank, Stockholm, 19 December. Sveriges Riksbank. Petri, Gunnar (2017), Hans Järta – En biografi [Hans Järta – A biography] (In Swedish) Historiska Media, Lund. Quarles, Randal K. (2019), “Monetary policy and financial stability,” remarks at “Developments in Empirical Macroeconomics”, a research conference sponsored by the Federal Reserve Board and the Federal Reserve Bank of New York, Washington, D.C. Rogoff, Kenneth (2017), “Dealing with Monetary Paralysis at the Zero Bound”, Journal of Economic Perspectives 31(3), pp. 47-66. Rosengren, Eric S. (2015), “Changing economic relationships: Implications for monetary policy and simple monetary policy rules”, speech on 16 April, Federal Reserve Bank of Boston. 17 [21]  Svensson, Lars E. O. (2017), “Cost-benefit analysis of leaning against the wind”, Journal of Monetary Economics 90, pp. 193-213. Sveriges Riksbank (2017), “The Riksbank’s e-krona project”, Report 1, September 2017. Sveriges Riksbank (2018a), “Account of monetary policy 2018”, Sveriges Riksbank. Sveriges Riksbank (2018b), “The Riksbank’s e-krona project”, Report 2, October 2018. Sveriges Riksdag (1897) Riksdag minutes, Second Chamber, No. 30, Saturday 24 April.