this process often leads to a substantial weakening in public finances, too, partly because of the rapid decline in economic activity and partly because the banking system may in a worst case scenario require support. in this way, one can say that the credit cycle and the economic cycle pull one another down. sometimes one uses the expression “ credit boom gone wrong ” to describe this kind of development. 5 of course, not all credit cycles look like this, but history shows that it is difficult to avoid it happening now and again. there is fairly good empirical evidence to support this description. for example, schularick and taylor ( 2012 ) find in a study of more than 200 recession periods in 14 economies during the years 1870 – 2008, that the more households and companies borrow during an economic upturn, the greater the risk that the upturn will be followed by a deep recession and a slow recovery – regardless of whether or not a financial crisis occurs. they also find that recessions linked to a financial crisis are more costly than normal recessions as production then falls more. an obvious example of a credit cycle that for a few examples, see geanakoplos ( 2009 ), aikman, haldane and nelson ( 2010 ) and borio ( 2012 ). see, for example, mian and sufi ( 2010 ). there is a debate, so far mainly in the united states, on what has caused the main problems for the macro economy – the crisis in the banking system or households debt overhang ( see, for instance, krugman, 2013 ). an increasing number of people consider it has been the latter. see, for example, schularick and taylor ( 2012 ). bis central bankers ’ speeches went wrong close to home is the boom that contributed to a bank and property crisis and deep recession in the early 1990s. after the crisis – pay greater attention to the credit cycle! figure 1 is a good basis when one wants to illustrate different questions regarding monetary policy and central bank operations that have arisen due to the crisis and are now being discussed both internationally and in the debate here in sweden. the perception prior to the crisis could be described, in a rather simplified, but not misleading, manner as central banks in principle being able to disregard the credit cycle and focus solely on the economic cycle. it was assumed that those cases in which the credit cycle pulls down the economic cycle, which were presumed to be fairly rare, would be relatively easy to manage.

stefan ingves : central bank policies – the way forward after the crisis speech by mr stefan ingves, governor of the sveriges riksbank and chairman of the basel committee on banking supervision, at the royal bank of scotland, stockholm, 4 october 2013. * * * how should the riksbank and other central banks act to contribute to the best possible development of the economy? this is a question that one might need to contemplate from time to time. because at the end of the day, there is probably some truth in the old joke that it is not a problem if the questions in the economics exam are the same year after year – the answers will change anyway. the international financial and debt crisis that started around five years ago, and which still afflicts many countries, makes it particularly important to consider whether the answer to the question has changed – whether the central banks should conduct their operations differently from before the crisis, and if so, how. this issue is currently being discussed internationally, both in research and in policy. we do not now know exactly where this discussion will lead, although it is possible to distinguish some main conclusions. prior to the crisis – most of the pieces of the puzzle appeared to be in place before the crisis, everything seemed quite simple. the global economy had experienced an unusually long period of good growth, relatively minor cyclical fluctuations, and low and stable inflation. this coincided with monetary policy being increasingly aimed at holding inflation in check. a growing number of countries had introduced explicit or implicit inflation targets and monetary policy had increasingly been delegated to independent central banks. once inflation expectations had been anchored, it became easier to stabilise the real economy as well. many felt that an important reason for the favourable developments in the world economy was that these changed enabled monetary policy to be conducted in a better manner than before. 1 moreover, during the period prior to the crisis financial stability was increasingly being taken for granted. it was assumed that the financial markets were on the whole efficient and functioning smoothly. financial crises did occur, but most of the countries affected were able to get back on their feet relatively quickly. the successful management of the it bubble at the turn of the millennium supported the impression that if crises occurred, they could be dealt with relatively simply and efficiently. japan, where the problems following the crisis at the beginning of the 1990s nevertheless had been long - lasting, was regarded as a special case. although developments in japan were regarded as interesting, the lessons