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).

Dagens Industri (2013a), Assar Lindbeck röstar med Riksbankens minoritet (Assar Lindbeck votes the same as the minority of the Executive Board of the Riksbank), article 18 February, available at (only in Swedish): http://www.di.se/#!/artiklar/2013/2/18/assar-lindbeck-rostarmed-riksbankens-minoritet/?flik=senaste Dagens Industri (2013b), Bankchef varnar Sverige för bopriserna, (Bank manager warns Sweden about housing prices)(only in Swedish) article on 21 May, available at: http://www.di.se/#!/artiklar/2013/5/21/bankchef-varnar-sverige-for-bopriserna/ Goodhart, Charles and Rochet, Jean-Charles (2011), Assessment of the Riksbank's monetary policy and work with financial stability 2005-2010. Reports from the Riksdag 2010/11:RFR5. Committee on Finance, Sveriges Riksdag. Heikensten, Lars (2008), More To It than Just ’Leaning Against the Wind’. Article in the Financial Times, 5 June 2008. IMF (2013), Sweden – 2013 Article IV Consultation: Concluding Statement of the Mission. Stockholm, 31 May 2013. Ingves, Stefan (2007), Housing and Monetary Policy: A View from an Inflation-Targeting Central Bank. In Housing, Housing Finance and Monetary Policy, Jackson Hole Symposium Conference Proceedings, 433-443, Federal Reserve Bank of Kansas City. Jansson, Per (2012), My view of inflation targeting. Speech at Karlstad University 11 October, Sveriges Riksbank. Jordà, Òscar, Schularick, Moritz HP. and Taylor, Alan M. (2011), When Credit Bites Back: Leverage, Business Cycles, and Crises. NBER Working Paper Series, no. 17621. National Bureau of Economic Research King, Mervyn (2012), Twenty Years of Inflation Targeting. The Stamp Memorial Lecture, speech at London School of Economics, 9 October 2012. Mian, Atif and Sufi, Amir (2011), Consumers and the Economy, Part II: Household Debt and the Weak U.S. Recovery. FRBSF Economic Letter, January 18. Federal Reserve Bank of San Francisco.