on leveraged loans has been at the low end of its historical range, and corporate credit conditions have been favorable, with low interest expenses and low expected default rates. however, if spreads rise sharply or economic conditions deteriorate significantly, we could see downgrades, refinancing challenges, rising delinquencies and defaults, and losses to investors. it is thus particularly notable that the run - up in business debt occurred against a backdrop of generally elevated valuations ( figure 10 ). even with the recent volatility in equity markets and the recent widening of corporate bond spreads, a range of asset prices remain high relative to historical benchmarks. in particular, yields on high - yield corporate bonds relative to treasury securities remain somewhat narrow on a historical basis despite recent increases. similarly, although they have moved up in recent months, spreads on leveraged loans remain in the low end of their range since the financial crisis, which is notable given the evidence of weakening protections. finally, capitalization rates on commercial real estate properties, which measure annual income relative to prices for recently transacted properties, have been low relative to treasury yields. the generally high appetite for risk that we saw over the past two years makes the equity, corporate debt, and other asset markets more vulnerable to swings in market sentiment. in addition to generating losses for investors, declines in valuations could make it more challenging for firms to obtain or extend financing - - especially among risky, indebted firms - - which in turn could be amplified by the high levels of risky corporate debt. - 10 calibrating policy over the cycle the assessment of financial vulnerabilities that i have outlined naturally raises the following question for policymakers : what is the appropriate risk tolerance? it goes without saying we must take all appropriate steps to prevent another great financial crisis from causing the greatest contraction in global economic activity since the great depression. but it is also worth remembering that financial imbalances played a key role in each of the past three u. s. downturns - - the risky investments and maturity mismatches associated with the savings and loan crisis and junk bond collapse ; the tech boom and bust ; and, most dramatically, the subprime crisis. this suggests policy might seek to moderate financial vulnerabilities when they are likely to materially exacerbate an economic downturn, leading to deeper declines in output and higher levels of unemployment. each of the past three u. s. recessions featured

on average been higher under the new regime. it also appears that, if anything, the real stability of the economy has improved. nevertheless, there is always good reason to consider how monetary policy can be developed and improved. to this end, i have discussed how the riksbank ’ s monetary policy work can be developed. this has included what could be termed technical improvements ; for instance, greater use of other assumptions than an unchanged repo rate and an extended forecast horizon when producing and presenting data. the advantage of using, for example, implied forward rates as a basis is that they can often be a more realistic assumption than an unchanged interest rate. this can in turn allow more and better alternative scenarios, which can illustrate different aspects of monetary policy including the consequences for inflation and resource utilisation over a longer time horizon. it has also included the riksbank ’ s communication. working with a longer time horizon provides a better overview of the effects of temporary influences on inflation. scenarios containing different assumptions regarding the repo rate and using a longer time horizon can also contribute to a clearer illustration of the considerations monetary policy has to take into account with regard to balancing inflation against real economic aspects. i have also discussed this. the primary advantage of supplementing the assumption of an unchanged repo rate with alternative interest rate paths and making longer - term forecasts is that it makes it easier to explain the monetary policy message. the simple policy rule – which involves interest rate decisions being based on inflation normally being returned to the target one to two years ahead – will continue to provide a good guide to our actions. the guidelines in the clarification from 1999 will thus continue to form the basis of our monetary policy. when the decisions need to take account of other information than that significant for inflation one to two years ahead, the new working method should make it easier to understand how this is done. discussing an entire interest rate path can also create the conditions for a more balanced discussion of monetary policy. this can involve when we intend to change our monetary policy stance and how quickly we should proceed. what will happen if we wait a while before changing the interest rate? this type of consideration is probably more important than detailed discussions about tenths of a percentage point in a forecast. in conclusion, i have also mentioned the fundamental framework that governs monetary policy. this is mainly because it is sometimes claimed in the general debate that the riksbank and other inflationtargeting countries have bound themselves too tightly to a particular