and presenting its views of the risks in the financial system. ever since the bank crisis at the beginning of the 1990s, this has been perceived as a very important task in sweden ; in fact, it could be argued that the bank crisis was allowed to arise partly because no authority previously had the specific task of monitoring the overall financial stability. the riksbank now publishes a twice - yearly report analysing the stability of the swedish financial system. in a crisis situation, the central bank plays a very important role. it may then need to go in and act as lender of last resort, that is, to grant emergency liquidity assistance ( ela ) to banks and financial companies if this is considered necessary to prevent the financial system from collapsing. the two objectives of price stability and financial stability are related to each other in different ways, in addition to both being important components of an efficient payment system. the stability of the financial system is of course a necessary condition for a policy aimed at price stability, as the latter is fairly meaningless if the country is threatened with economic collapse. the financial stability objective can therefore in one sense be said to be superior to the objective of price stability. at the same time, it is very probable that price stability in the long run promotes financial stability, for instance, by making the price system function better and thereby reducing the risk of bad investments. however, price stability is no guarantee of stability in the financial system, which is illustrated, for instance, by the problems in the japanese banks at the beginning of the 1990s. there is thus no reason for central banks to focus solely on the price stability objective and thereby assume that financial stability will follow automatically – both objectives are important. other objectives than price stability and financial stability? are there any other objectives than price stability and financial stability that may be suitable for a modern central bank? many countries also have objectives for developments in the real economy written into the regulatory framework governing the central bank ’ s activities. for instance, in the us legislation it says that the federal reserve shall promote “ maximum employment ”, while the british legislation says that the bank of england shall support “ the economic policy of her majesty ’ s government, including its objectives for growth and employment ”. in sweden there is no specific objective for real economic developments written into the law, but it is nevertheless considered to be understood that the see, for instance, oosterloo, s. and j. de haan, ( 2003 ), ” a

although i am worried that swedish inflation has been too low for several years, i believe that the debate on deflation is sometimes too foreboding and that it often focuses on the wrong risks. to begin with, i do not see a lengthy period with falling prices as a likely scenario for sweden. growth is relatively strong, which should contribute to a rise in prices. moreover, we have the scope to counteract falling prices with more expansionary monetary policy. the repo rate can be cut by at least 50 basis points before the lower bound is reached. if this were not enough, we could draw up other monetary policy measures that would contribute to a rise in inflation. moreover, nothing dramatic will happen merely because inflation falls below zero and is weakly negative rather than weakly positive. the problems of low inflation that i have listed above gradually increase when inflation is lower and this will of course continue to apply when inflation is negative. but the problem with prices falling is often said to be that demand will then collapse as households are postponing consumption while waiting for prices to fall so they can buy more cheaply. 19 this reasoning is not necessarily wrong, but is really only a reformulation of the problem i mentioned above ; that low inflation limits the scope for making monetary policy more expansionary. there is a risk that households will postpone their consumption – that is, that they will increase their saving – if the real interest rate becomes unjustifiably high. here it is necessary to put price developments in relation to developments in wages and the return on saving. there is therefore scarcely reason to believe that anything dramatic will begin to happen just as the general rate of inflation becomes negative. one should also remember that substantial differences are hidden in the price trends for different product groups that lie behind the general rate of inflation. one example is developments in prices for technology - intensive goods such as tvs, computers and mobile according to drehmann et al. ( 2012 ), an average financial cycle, in which the credit cycle is a central element, is 16 years long. the length of an average business cycle is much shorter, perhaps five years. inflation expectations have fallen in recent years in the surveys conducted by the national institute of economic research and prospera. short - term expectations are now just below one per cent, but long - term expectations are still close to the two per cent inflation target. see the reasoning on this in williams ( 2009 ) and bayoumi et al. ( 2014 ).