monetary policy decisions. if, without detken c and f smets : asset price booms and monetary policy. paper presented on 11 december 2003 at the workshop on “ asset prices and monetary policy ”, european central bank. being certain, we judge that developments might lead to substantial disturbances, the choice lies between attempting in time to avoid the accumulation of large imbalances and waiting until the situation turns. many within the central bank world believe that interest rate policy should not react to asset prices and credit expansion over and above their estimated implications for inflation and real and financial stability. 4 the reasons are that it is difficult to evaluate correctly the price of an asset and that it is uncertain what level of interest rates would be necessary in a given situation to correct asset prices. those that advocate a more preventive strategy meet this criticism by arguing that, firstly, models for asset prices exist and that it should not be more difficult to use these than to estimate the output gap, for example, which the majority of central banks make use of today. secondly, by raising interest rates at an early stage when asset prices are starting to accelerate and before the expansion in credit has become too sharp, the central bank can indeed achieve somewhat lower inflation than is desirable in the short term. but one avoids a subsequent collapse in asset prices that could lead to considerably lower output and inflation in the longer term. thirdly, somewhat tighter monetary policy than otherwise would be able to counter an over - optimistic pricing of financial assets and properties. the second argument is therefore based on the idea that the central banks ’ normal forecast horizon of two years is too short, while the third argument is based on the assumption of irrational expectations. lengthening the forecast horizon is relatively simple in principle, but in practice it is more difficult of course. especially if the models used have some of the shortcomings i mentioned earlier. the third argument regarding irrational expectations is more difficult to adopt a position on. if we seriously believe that it is relevant, a large part of the foundation for the analysis and recommendations on which central banks today base their policy collapses at the same time. however, “ irrational expectations ” could be a result of insufficient availability of information. therefore, it cannot be ruled out that central banks, by pointing out potential problems associated with high debt levels, can contribute to reflection among those agents that otherwise would undertake commitments that they would not be able to meet when conditions change or in banks that otherwise would take on excessive credit risks. influencing behaviour in this

on monetary policy and other activities that the bank must submit to the committee. the the riksbank was already considered in 2010 to be the most transparent central bank in the world ( see central bank transparency and independence : updates and new measures ( ijcb. org ) ), largely as a result of the riksbank ’ s own initiatives. the same judgement on the riksbank was also given in 2019 ( see trends in monetary policy transparency : ). further updates ( ijcb. org ) ). in 2014, the riksbank was declared winner of a prize by central banking publications, the central banking transparency award. ( see riksbank awarded transparency prize | sveriges riksbank ) 10 swedish national audit office also examines the riksbank ’ s activities. last but not least, the riksbank is closely scrutinised by the media. the independence of the riksbank is thus democratically decided and protected, among other things, by the treaty on the functioning of the european union ( tfeu ). but in principle, independence could be removed even if it is not something that an individual eu member state can decide on its own. let me reflect a little on how i see this risk. i believe that the risk of independence being curtailed and ultimately lost is greater if the central bank starts to interpret its mandate very broadly and acts without first carefully considering whether the mandate really provides for the measures being taken. a particular danger may lie in getting involved in areas where there appears to be a strong consensus among politicians and the public. you never know if and when the political winds will change and the central bank ’ s behaviour may be questioned afterwards. i believe that a relatively narrow interpretation of the central bank ’ s mandate is reasonable in order to safeguard the independence required for a central bank to fulfil its primary task of maintaining price stability. financial independence and the riksbank ’ s equity financial independence is partly expressed in the fact that the riksbank has assets that are separate from the assets of the state. 10 the riksbank shall also be independent in the management of this asset base, with the idea being that it shall generate sufficient return to finance the bank ’ s operations. furthermore, the riksbank decides on its own budget, which means that the bank decides on its own costs. precisely because of this financial independence, the riksbank is not funded by government appropriations. its own assets and the fact that the ri