housing prices. lending to non - financial companies and to households increased by 10 – 15 per year in the years preceding the crisis and house prices increased by around 10 per cent per year. the prices of tenant - owned apartments increased even more rapidly. this trend began already in the mid - 1990s, but it accelerated in the years preceding the crisis6 ( see figure 9 ). giavazzi, francesco and mishkin, frederic : an evaluation of swedish monetary policy between 1995 and 2005, riksdag committee on finance, november 2006. see for example svante oberg : potential gdp, resource utilisation and monetary policy, sveriges riksbank, 7 october 2010. giavazzi and mishkin ( op. cit. ) said that one reason why inflation had been low in the period 2002 – 2004 was that the riksbank, since 2002, had begun to take house prices into account. however, in later papers mishkin wrote that one lesson from the crisis is that that there are stronger reasons for monetary policy to counteract credit - driven asset price bubbles, see for example mishkin, frederic : monetary policy strategy : lessons from the crisis, october 2010. bis central bankers ’ speeches a comparison with a simple taylor rule7 also indicates that the repo rate should have been significantly higher. a taylor rule can indicate whether the level of the repo is reasonable. based on inflation measured in terms of the cpif or the hicp8 and the gdp gaps i presented earlier, the repo rate, according to the taylor rule, should have been around 7 per cent in the third quarter of 2008. i now believe, as i said earlier, that the presented positive gdp gaps are exaggerated. with my assessment of the gdp gap, the repo rate according to the taylor rule would instead have been around 6 per cent in the third quarter of 2008, but still considerably higher than the 4. 75 per cent it reached before the crisis ( see figure 10 ). when i look back on the monetary policy conducted since i joined the riksbank on 1 january 2006 up to the point when the financial crisis hit sweden in september 2008, i therefore believe that monetary policy was too expansionary in the years preceding the crisis. inflation increased and reached a level that was tangibly higher than the inflation target, resource utilisation was higher than normal and there was a rapid expansion of credit. despite this, the repo rate was lower than normal for

##see the financial crisis, but once it hit the swedish economy with full force in september 2008 the riksbank acted quickly and forcefully. this mainly concerned measures to preserve financial stability. however, the expansionary monetary policy conducted by the riksbank also played an important role in reducing the severity of the downturn that followed in the wake of the financial crisis. looking forward, i think that the repo rate should be raised at every meeting this year, considering the economic development we envisaged at the last monetary policy meeting. if inflation becomes higher than we had expected, it may be necessary to raise the repo rate to a normal level of around 4 per cent as soon as next year. the average for the repo rate over the last 10 years cannot be taken as a starting point for what the average repo rate should be in the longer term. however, at the same time, i am, of course, prepared to reassess my view of the direction of monetary policy if the external conditions should change significantly, as they did in september 2008. there are those who think that monetary policy is too tight. however, with a rate of growth of over 5 per cent and a repo rate of 1. 50 per cent, i do not think we can say that monetary policy is tight. it is just gradually becoming slightly less expansionary. there are not four hawks and two doves on the executive board at present, only six doves. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches