The macroprudential mandate is likely to be broad in scope, as system-wide risks can arise in a wide range of ways and from a wide range of sources. Consequently, the range of macroprudential instruments must be equally broad in scope. Discussions of macroprudential instruments usually emphasise the need for instruments that operate in two dimensions: the time or cyclical dimension, in which instruments are designed to counteract financial multipliers/ accelerators that amplify cycles; and the cross-sectional dimension, in which instruments are required to isolate or dampen the transmission of problems across the financial system. While it is important that the macroprudential agency has control over instruments to prevent and mitigate system-wide risks, it is not essential for the agency to implement these instruments itself. The macroprudential toolkit is likely to include instruments used for other policy objectives and not implemented by the macroprudential agency (for example, capital requirements and insurance premiums). Overlap between policy areas The overlap between different policy areas is one of the major challenges to the design of effective governance arrangements. Responsibility for using instruments that can be used for multiple policy objectives is more complicated and policy-setting is more difficult as policymakers must consider the unintended impact of their instruments on other policy objectives and the unintended impact of other policy-makers’ instruments on their own policy objective. The use of an instrument for one objective may conflict with or amplify the effect of instruments used to achieve a different policy objective.

Karolina Ekholm: The role of forecasts in monetary policy Speech by Ms Karolina Ekholm, Deputy Governor of the Sveriges Riksbank, held at Handelsbanken, Stockholm, 11 May 2010. *  *  *  The theme I have chosen for today’s speech is the role of forecasts in the monetary policy decision-making process. Given the events in recent days, I realise that many people are probably more curious about how we at the Riksbank view the problems with public finances in southern Europe than about our methods for making and using forecasts. So I shall begin with a few words about this. The EU countries have now decided to implement several measures aimed at preventing the public finance problems in Greece from creating new problems in the financial markets and possibly leading to a new economic downturn. The Riksbank considers it a very positive sign that a large rescue package with measures has now been presented to promote financial stability in Europe. We all gain from safeguarding stability. However, it is still too early to say exactly what effects the new package will have. Here in Sweden the financial markets are functioning, but this does not rule out the possibility that they will suffer contagion effects from the international financial markets. Swedish banks have only small direct exposures towards the so-called PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) and are well-capitalised in an international comparison. However, the Riksbank follows developments closely and has regular contacts with Swedish banks and with other central banks.