on securities let me begin with yields on government securities, which fell. on the surface, this looks like a typical portfolio balance effect that has been highlighted in many studies, for instance vayanos and vila ( 2021 ). the idea is that the policy rate is limited by its lower bound, but that the yield curve slopes upwards so that interest rates at longer maturities can be pushed down. when the central bank buys government bonds with long maturities, investors who want debt instruments with long maturities need to seek other investments. this means that prices rise, that is, the rates fall, also on other assets with long maturities. as borrowers then gain access to cheaper financing, monetary policy has become more expansionary. but for several reasons, this was not really how it worked in sweden. certainly, rates on government securities appear to have fallen. this is supported by event studies which investigate how market rates are affected by new information on asset purchases. 5 erikson ( 2021 ) also finds that rates on government securities fell apace with the riksbank's holdings increasing from 2015 to 2017, but he shows that the rate fell on the shortest maturities. at the end of 2017, the rate on government securities with short maturities was between 20 and 35 basis points lower than the riksbank's policy rate, depending on the measure used ( see figure 2 ). 6 event studies show that the rate on government bonds fell by 30 - 50 basis points in total as a result of the riksbank's purchases during 2015 - 2017. erikson's study indicates that the entire decline in long - term interest rates occurred as a result of the short - term interest rates on government securities being pushed down and expected to remain so. the interest rate effect appears to have arisen through a general shortage of government securities ( a negative liquidity premium, even on the very shortest maturities ) rather than the term premiums being pushed down. if our purchases entailed lower premiums on government bonds, the rate on government bonds should have fallen in relation to the expected average policy rate over the maturity of the bond. one way of examining this is to compare the rate on government bonds with expectations of the future policy rate, as in the left panel of figure 3. 7 we see a clear fall in the interest rate differential of about 20 basis points when purchases started in early 2015 and then a further fall around 5 see de rezende, kjellberg and

practice by short - run exchange rate fluctuations. the focus then shifted and today it is clearer that what matters for monetary policy is the entire path of the exchange rate and inflation in the coming years. the monetary policy reaction to a shift in the exchange rate depends on the cause of the shift, its perceived duration and the economic situation in general. exchange rate movements are not to be considered as isolated events, neither should monetary policy ’ s reactions to them be mechanical. if a depreciation stems from an international slowdown, for example, the consequences for monetary policy will differ from a case where the roots lie in a lack of confidence in sweden ’ s economic policy. the situation at the beginning of june can serve as an illustration. the problem was not simply that the krona was under - valued. that had been the case, though not so dramatically, for a long time. what led us to conclude that the situation was sufficiently serious to warrant action was a conjunction of several factors. the depreciation occurred very rapidly and we had not received any new information that justified such a marked movement. that meant that the future, relatively optimistic path for the krona on which monetary policy had been formulated now appeared less realistic. the depreciation was, moreover, particularly troublesome in that it coincided with a substantial price rise and accordingly heightened the risk of inflation expectations shifting to a rate of price increases that exceeded the riksbank ’ s target. the increase in inflation stemmed both from transitory factors and from persistently high resource utilisation. forecasting exchange rates is difficult as i said, it is the exchange rate ’ s path in the coming two years that is important for monetary policy. so how can one arrive at a picture of the exchange rate several years ahead? the central banks that target inflation can be said to have three main approaches. • one alternative is to assume that the exchange rate will be unchanged during the forecast period, quite simply to adopt a cut - off rate. this, however, raises a number of problems. as exchange rates are liable to shift rather rapidly and the assumed rate is of considerable importance for the forecast rate of inflation, this approach may entail sudden changes in the assessment of inflation and thereby in the repo rate. another problem is the risk of being trapped in a game situation with the market. so there are sound reasons for not resorting to a more short - term pattern of reactions. sooner or later, other central banks have generally come to the same