mr. backstrom speaks on swedish monetary policy outside emu address by the governor of the bank of sweden, mr. urban backstrom, to the monetary policy forum organised by the centre for business policy studies and the riksbank in stockholm on 22 / 4 / 98. i am pleased to note that the centre for business policy studies ( sns ) is maintaining the tradition, together with the riksbank, of arranging the monetary policy forum. this is our sixth annual opportunity of discussing monetary policy issues in the forum and what could be more natural on this occasion than to consider the monetary policy future in europe in connection with the launching of what is perhaps history ’ s most momentous project in this field. besides the question of how monetary policy will be conducted in the euro area, an equally important issue for us in sweden is how our monetary policy will be affected when stage three of emu starts and sweden does not participate initially. the discussion of “ monetary policy in emu ” is to be opened by my finnish colleague, dr. sirkka hamalainen, and i want to take this opportunity of wishing her a hearty welcome to sweden. in this context i should also like to express my appreciation of the close cooperation between suomen pankki and sveriges riksbank, which we reckon to continue even though finland participates in the monetary union. the topic assigned to me is “ swedish monetary policy outside emu ”. first i shall paint my picture of what an outsider position will entail for sweden ’ s economic policy. then i will look at how monetary policy in sweden is constructed in principle and conclude with some remarks on the current situation. in that sweden will be outside the euro area initially, our economic policy will be constructed to fulfil the goals that are set up in sweden. these goals are based in turn on our domestic priorities together with the commitments we have as a member of the european union. to a large extent, sweden ’ s priorities are the same as the eu ’ s : implement an economic policy constructed for stability and low inflation, thereby creating conditions for a good development of prosperity. participation or otherwise in the monetary union does not affect the need for a balanced economic policy. monetary policy aimed at price stability a political majority has stated that membership of the european exchange rate mechanism, erm, is to be seen as a preliminary step towards participation in the monetary union. thus there are reasons for supposing that the question of erm membership will not

the crisis has for the most part been governed by traditional monetary policy motives, that is, the expected development of economic activity and inflation over the coming years. giving consideration to the risks associated with the developments in household debt and housing prices has been part of our assessment, but a relatively minor part. the picture painted in the criticism has been quite different. here the starting point is instead that the riksbank ’ s concern over developments in household debt was the main motive for raising the repo rate after the financial crisis. much of the criticism even seems to assume that household debt was the only motive for raising the repo rate. in a so - called counterfactual analysis that has played a central role in the criticism, the actual policy conducted is compared with the alternative of not raising the repo rate at all, but leaving it unchanged at 0. 25 per cent since the crisis. 3 the latter is assumed to represent a policy that does not lean against the wind. the riksbank and other economic analysts made similar forecasts so what support do i have for my view that concern over household debt has only had a limited influence on the repo - rate decisions? to begin with, one can look at the riksbank ’ s motives as stated in the press releases following the monetary policy meetings. if one does this, it is pretty clear that the focus has been on economic activity and inflation in the coming years. certainly, it is often mentioned at the same time that the policy conducted is expected to contribute to less risk of imbalances building up with regard to indebtedness and housing prices, but more as a side - effect and not as a main reason. the overall impression is that the policy would have been marginally different if this risk had not been addressed – not that it would have been completely different. one can also look at the discussions that were conducted within the riksbank. it is a wellknown fact that there were differing opinions within the riksbank, but how different were they? the situation in july 2011 is an example. the repo rate had then been raised to 2 per cent, the highest level it reached before it was reduced again. the minutes of the monetary policy meeting show the executive board members ’ view of the appropriate monetary policy in the years ahead. in figure 1, the dotted blue line shows the future repo - rate path see, for example, svensson ( 2014 ). this counterfactual analysis