Some economists even argue that it is so pervasive that smaller economies have completely lost the ability to conduct an independent monetary policy if capital movements are free. That is probably an altogether too drastic conclusion, but there is much to suggest that international capital flows and the global financial cycle at least limit the degree of freedom for monetary policy. Monetary policy needs to be complemented by macroprudential policy measures The global financial cycle after the financial crisis has largely been steered by the expansionary monetary policies of the United States and euro area. Low interest  14 See, for example, Obstfeld and Taylor (2004). 15 See, for example, Rey (2015). 14 [23]  rates have led to rapid credit growth and rising house prices in several countries. Attempting to counteract this development at a local level with monetary policy has hardly been possible. Monetary policy can certainly ‘lean against the wind’ and thereby hold policy rates a little higher than what would have been justifiable by the prevailing economic situation with the aim of restraining excessively rapid credit growth. This can reduce the risks, but it would probably not be enough and would also be linked with costs. Many consider therefore that monetary policy needs to be complemented by other measures so that it can meet the price stability target. The introduction of capital controls, thus directly restricting capital flows, is one possible measure. But this would be expensive.

As I have pointed out several times previously, I think it would be good if the Riksbank were to be given an extended mandate to prevent financial crises and, at the same time, were to be allocated some macroprudential policy tools. The Swedish banking system has a relatively great need for wholesale funding in foreign currency. In order to provide liquidity support in foreign currency, the Riksbank therefore needs to maintain a sufficiently large foreign currency reserve. The Government's proposal that the foreign currency reserve should be roughly halved is risky. My assessment is that at least the current level of the foreign currency reserve is necessary to allow us to meet the needs that can be expected to arise in the short term in a financial crisis. 21 [23]  References Bernanke, Ben (2015), “Why are interest rates so low, part 2: secular stagnation”, Ben Bernanke’s blog, 31 March 2015, https://www.brookings.edu/blog/benbernanke/2015/03/31/why-are-interest-rates-so-low-part-2-secular-stagnation. Bernanke, Ben (2015), “Why are interest rates so low, part 3: the global savings glut”, Ben Bernanke’s blog, 1 April 2015, https://www.brookings.edu/blog/benbernanke/2015/04/01/why-are-interest-rates-so-low-part-3-the-global-savingsglut. Billi, Roberto and Anders Vredin, (2014), “Monetary policy and financial stability – a simple story”, Economic Review 2014:2, Sveriges Riksbank. Bjørnland, Hilde, (2017), ”Should monetary policy pay attention to financial stability?” in Erfaringer med inflasjonsmål for pengepolitikken, Arbeidsnotat 2017/4, Ministry of Finance, Norway. Blinder, Alan, (2010), ”How central should the central bank be?”, Journal of Economic Literature, 48:1, pp. 123–133.