vredin for discussions and comments on previous versions of the text. * 1 concern two related questions : should the purchase and sale of bonds be an active monetary policy tool even in the future? do large bond holdings strengthen the transmission of central bank policy rates to market rates? before i analyse these questions in more detail, i would like provide some background by describing both what central bank balance sheets looked like before the crisis and how they have developed since, and how the design of monetary policy interacts with the balance sheet. this background is important in order to be able to assess how the riksbank ’ s balance sheet should develop over the longer term and be able to relate to the discussion in other countries. central bank balance sheets were quite different prior to the financial crisis, both in composition and size. we can expect countries in which monetary policy steers towards similar future inflation targets to have comparable interest rate levels. the balance sheets may, however, look quite different. my main message today is that the monetary policy arguments for a large balance sheet are, in my opinion, not particularly strong in the swedish context. indeed, there are also risks associated with maintaining a large balance sheet. the most likely scenario is therefore that the riksbank ’ s balance sheet will, in a future normal situation, be substantially smaller than it is today. there is no “ normal ” balance sheet figure 2 shows what various central bank balance sheets looked like just over a decade ago, prior to the global financial crisis. the most striking feature of the figure is that balance sheets looked different in different countries. in some countries, for example the united states and canada, the central bank had a lean balance sheet, the size of which was determined in practice by the demand for banknotes in the economy. the asset side was dominated by domestic government bonds while the liability side was dominated by issued banknotes. these lean balance sheets meant that they had an almost entirely risk - free financial position as the central bank receives interest payments on the assets while the liabilities are cost - free. in this way and if the interest rate is sufficiently high and the banknote demand sufficiently large, the central bank can fund its own operations and deliver a surplus to the state. the riksbank and the swiss national bank also had relatively minimalistic balance sheets where the liability side was dominated by cost - free capital, but, apart from banknotes, these central banks had accumulated equity on the liability side. the asset side was dominated by gold

considerably lower than last year and also lower than the trend development. even in the world as a whole growth is expected to slow but remain good since emerging markets such as china and india are expected to continue to grow at a rapid rate. in the main scenario the recovery in the united states and the euro area is expected to begin during the second half of this year and next year growth will largely be back at the trend level. growth in sweden is expected to be approximately the same this year as last year, but in reality this is a weakening if one takes into account the larger number of working days this year. inflation in sweden rose rapidly in the autumn and, measured by both the cpi and the cpix, is expected to exceed the inflation target during a large part of the forecast period. the uncertainty over future economic developments is still considerable, however, and to highlight this a number of alternative scenarios are described in the monetary policy report. one of these involves greater financial turmoil and that growth abroad will slow down more sharply. in this scenario growth in the us economy will fall more than in the main scenario, at the same time as the borrowing costs for households and companies in the whole world will be higher. this leads to a general dampening of demand and to lower gdp growth and inflation both abroad and in sweden. but, as we have written in previous reports, there is also a risk that inflation will be higher than in the main scenario if wage developments are stronger and productivity weaker than expected. in addition, the risk has grown that prices abroad may increase at a faster rate than in the main scenario, which would have an impact on inflation in sweden also. my international outlook in february we must look at the overall picture when we make our monetary policy decisions. the forecast in the report should be seen as an average forecast, which is always surrounded by a substantial uncertainty interval. in this case it was unusually difficult to have an idea of the probabilities for the different outcomes. even though the present situation has certain similarities with some previous episodes, the differences outweigh the similarities and there is, therefore, little previous experience to learn from. prior to the monetary policy meeting in february i felt, and still do feel, more concern over international developments than is reflected in the main scenario of the monetary policy report. my view of international developments did not differ greatly from that of the main scenario in the short - term perspective. however, i was concerned that the financial crisis would be both deeper and more