longer for inflation to approach the target and for resource utilisation to normalise than if we do not take such uncertainty into account. 3 this line of reasoning may therefore mean that a higher repo - rate path is better balanced than the example ’ s lower path, despite the fact that it will take longer for inflation to reach the target. put another way, if we are not absolutely certain about the outcome of monetary policy it is better to proceed gradually. moreover, the repo rate is already low at present at the same time as we are seeing more and more signs that economic activity is picking up and at the same time as there are risks associated with household indebtedness. i would like to begin by discussing why household indebtedness has affected my stance on monetary policy. risks and rewards must be weighed against each other asset managers think in terms of risks and rewards. a strategy is evaluated using a financial risk calculation that is based on how much an asset portfolio can increase in value in relation to the risk that it will fall in value. this approach can also be applied to the world of central banking, although instead of being about an asset portfolio it is then about monitoring risks relating to the development of the economy and to the central bank ’ s target variables, for example inflation. 4 as in the case of an asset manager, the time horizon on which the strategy is based is important. translated to the current situation in the swedish economy, this risk - reward approach could be expressed by saying that better target attainment in the short term must be weighed against increased risks in the longer term. in other words, using a more expansionary policy to boost a part of the economy that is already relatively strong, that is the households, to counteract weak demand in the export sector – which in the main is due to factors beyond the reach of swedish monetary policy – risks leading to imbalances in the long term in my opinion. of course it is true that a more expansionary monetary policy could weaken the exchange rate, which would benefit the export sector, but in the monetary policy trade - off i cannot ignore the risks associated with the high level of household debt. at the same time, there is also a risk that monetary policy itself can contribute to the build - up of imbalances in the economy, not only by affecting various players through the well - known transmission channels, that is the interest rate channel, the exchange rate channel and the if the repo rate is set

charles bean : central banking then and now speech by mr charles bean, deputy governor for monetary policy of the bank of england, at the sir leslie melville lecture, australian national university, canberra, 12 july 2011. * * * good evening! it is a great honour to be invited here to give the tenth annual lecture dedicated to the memory of sir leslie melville. as you will all know, sir leslie had a most distinguished career, both in academia and as a public servant. much of his working life was spent as chief economic adviser to the commonwealth bank, the ancestor of the reserve bank of australia, where he provided advice to the board on monetary and exchange rate policy, and also to prime ministers and treasurers on economic matters more generally. in passing, i should record that sir leslie ’ s appointment was in part the result of one of the directors of the bank of england, otto niemeyer, pressurising the commonwealth bank to break with tradition by recruiting a professional economist! sir leslie also played a key role in the founding of the post - war economic order, leading the australian delegation to the bretton woods conference, where he earned the fulsome praise of maynard keynes, followed by a stint as australia ’ s executive director at the new international institutions. and, of course, he spent almost a decade as the second vice - chancellor of this university. i think you can say that was a professional life lived to the full. sir leslie ’ s early years at the commonwealth bank were spent dealing with the great depression, one of the great pathologies of economic history. i joined the bank of england from academia a little over a decade ago. while my first seven years turned out to be an unusually tranquil period for the economy, the past four years have been anything but. so tonight, i thought i would discuss some of the lessons that i think central banks should draw from the global financial crisis of 2007 – 8 and the subsequent great recession. the distinctive feature of a central bank derives from its role as the monopoly supplier of outside money, comprising notes and coin and commercial banks ’ reserve deposits. these constitute the ultimate settlement asset for an economy and mean that a central bank has a unique ability to create or destroy liquidity through the use of its balance sheet. the primary objective is to ensure that the supply of that liquidity is consistent with the smooth functioning of the real economy. from this follows the two core tasks of a central bank : the maintenance of broad stability in the price