monetary policy in this respect. one circumstance that may also play some role in the effectiveness of macroprudential policy is that it may be the case that macroprudential policy measures are perceived as more dramatic, not least for the banks, and as a larger intervention than an increase in the policy rate. the pressure not to act may thus be particularly strong in the field of macroprudential policy, and it may be fairly difficult to resist, particularly if the financial supervisor does not have a high degree of statutory independence. this could lead to an “ inaction bias ” – that one waits so long before taking measures that it is already too late by the time they are implemented. 14 hopefully, these are problems that will decline as macroprudential policy becomes more established and perceived as less dramatic – roughly in the same way as inflation - targeting gradually became more established and accepted. a further reason why macroprudential policy may need support is that monetary policy could in itself contribute to the problem. if monetary policy is very expansionary over a long period of time, this could contribute to distorted expectations of how high interest rates will be in the future and how the housing market will develop, and lead to an increase in risk taking in the economy. 15 this could set in motion forces that macroprudential policy may find difficult to counteract on its own. what i consider to be particularly important to bear in mind from all this is that there is currently a fairly lively discussion internationally among academics and experts, both on the need to coordinate macroprudential policy and monetary policy and on the question of whether monetary policy may need to be used in certain situations to counteract financial imbalances – even when macroprudential policy is in place. for some reason, one does not see much of this discussion in the swedish debate. here it seems rather that there is an assumption from the start that macroprudential policy and monetary policy are not related in any critical way and can be conducted more or less independently of one another without problem. but internationally, this is seen as far from obvious. see, for example, bayoumi, et al. ( 2014 ), blanchard, dell ’ ariccia and mauro ( 2013 ), carney ( 2013 ), smets ( 2013 ) and stein ( 2013, 2014 ) for discussions of this. this is an argument that i myself and others at the riksbank have highlighted on various occasion, see for instance, ing

the 500 largest companies were valued at almost 45 times the annual earnings. valuations were far more inflated than just before the major crash in 1929. although we do not have historical earnings data for the swedish stock market to compare with the us figures, there are many indications that valuations here were also very high historically. the correction of share prices has admittedly occurred to the accompaniment of corporate scandals and security policy risks. but even so, the fall should be seen above all as a consequence of the unprecedented rise and the high valuations at the beginning of 2000. an orderly adjustment i repeat that the course of events today differs in many respects from what happened in the world economy in the late 1920s and early 1930s. at that time, economic policy was tightened, free trade was restricted and banks collapsed. global economic activity went into a downward spiral of deflation, falling output and decreased employment. thus, the drop in share prices was only one of several ingredients in the mixture of events at that time. although world economic demand has been subdued and the recovery in activity is now rather sluggish, the fact remains that the adjustment after the latest upward phase and the high share values has been comparatively orderly. overall economic policy is expansionary - not restrictive - in many parts of the world. with some minor exceptions, there have been no extensive political interventions that impede international trade. moreover, the financial system has proved to be highly robust. the maintenance of an efficient payments system and the supply of credit from central parts of the financial system are, of course, important conditions for a further successive economic recovery. in the past it is disturbances in precisely these two functions that have caused real economic developments to follow paths that resulted in falling output and deflation. for an illustration of this we need only go back a decade or so to sweden ’ s own bank crisis. the fact that the financial system has been comparatively stable in the present situation has a variety of explanations. one is more highly developed methods for risk management. another is that the sophisticated markets for derivatives have made it possible to spread risks more efficiently to those who are better equipped to carry them. a third is that banks, financial institutions, legislators and supervisors have drawn important lessons from the periods of turbulence in the 1990s. a fourth, more direct explanation is that the highly inflated share values have not been used to any sizeable extent as collateral for bank loans. the interim reports from swedish banks have also confirmed that the swedish financial system is developing in a stable manner