with the riksbank's mandate and objectives. 8 the idea behind the riksbank's policy the idea behind the riksbank's policy can be illustrated with the aid of two stylised scenarios ( see figure 7 ). either one conducts a more expansionary monetary policy, as represented by the blue line, which endeavours to bring inflation up to the target within a relatively short time and to quickly reduce unemployment. however, this policy means that lending to households will increase and prices in the housing market will rise, ultimately to untenable levels. when housing prices fall at a later stage, inflation will therefore undershoot the target substantially and unemployment will be far above its long - run equilibrium level. all in all, target attainment will therefore not be very good. the second alternative, as represented by the red line, entails a less expansionary policy that lets it take a little longer to return to the inflation target and reduces unemployment more slowly – and in the short - term perspective therefore leads to poorer target attainment. however, this policy also means that one avoids debt becoming excessively high and housing prices accelerating out of control. one thus also avoids the turbulence that arises from a subsequent fall in housing prices and target attainment is better in a longer - term perspective. this policy is usually described as monetary policy " leaning against the wind ". it should be emphasised that this is of course an exaggerated and highly stylised example aimed at proving a point of principle. in reality, the deliberations we have to make are much more complex. 9 monetary policy is not a question of choosing between two alternatives that large debt levels can entail problems even if housing prices do not fall, as households become more sensitive to interest rate changes. see, for instance, the analysis on the discretionary income calculations in financial stability report 2013 : 1, sveriges riksbank. see, for example, mian and sufi ( 2011 ). jorda, schularick and taylor ( 2011 ) show in a study of crises in 14 countries during the period 1870 - 2008 that if the upswing phase is marked by a strong credit boom, the crisis tends to be deeper and the recovery slower. note that such a scenario would not necessarily lead to financial stability problems. see, for example, the stress tests published in the riksbank's financial stability reports. of course, the repo rate is not the only tool for managing this type

ignazio visco : launch of the oecd business and finance outlook special address by mr ignazio visco, governor of the bank of italy, at the launch of the oecd business and finance outlook, paris, 24 june 2015. * * * i first wish to thank the secretary general for kindly inviting me here today. the oecd business and finance outlook is a welcome newcomer that complements available analyses on the global economy ’ s macro - financial outlook published by international organizations. it adds, in this first issue, a distinct perspective by bringing together a number of topical issues that define the current situation of very low interest rates. i also like the focus on business investment and its financing channels in the post - crisis environment, and i agree on the relevance of the report ’ s key findings. before learning more details from adrian blundell - wignall ’ s presentation, i would like to offer just a few remarks, not least because the report ’ s starting point – record - low interest rates – is also very much affecting central banks ’ actions in response to the global financial crisis and especially, in the euro area, the sovereign debt crisis. the governing council of the ecb has been confronted with the risks stemming from a prolonged period of exceptionally low inflation, if not outright deflation. these risks are considered particularly high in the current conditions of policy rates at historical lows, possibly marked disanchoring of inflation expectations, and high levels of public and private debt. the response has been to launch an expanded asset purchase programme designed to bring about a sustained adjustment in the path of inflation consistent with the return to price stability, that is an annual growth in consumer prices of below but close to 2 per cent in the medium term. potential repercussions for specific sectors, such as those considered in the new oecd outlook, are not being ignored. there are no signs, for the time being, that low interest rates are provoking generalized imbalances, or that asset and property prices are subject to particular speculative pressures. local and sectoral tensions may occur, but they should be controlled with well - designed macro - prudential measures. moreover, the exposure of institutional investors to a prolonged period of very low interest rates may be significant in some euro - area countries, but it should be limited through better matching between yields and duration of balance sheet assets and liabilities, improved operating results through portfolio diversification, augmented technical reserves, and the adjustment