##9 de 6 c9 de 8 c0 de 0 c0 de 2 c0 de 4 c06 stockholm goteborg m almo femarig statsobligation figure 6. office prices annual percentage change - 10 - 10 storbritannien irland frankrike usa spanien figure 7. ted spread basis points, 3 month duration jan - 07 usa euroland storbrit annien sverige mar - 07 maj - 07 jul - 07 sep - 07 nov - 07 jan - 08 mar - 08 maj - 08 figure 8. credit spreads, usa figure 9. premiums in cds for a sample of banks basis points, duration 5 years jan - 07 kaupthing ubs cit ibank bear stearns lehman brothers deutsche bank mar - 07 maj - 07 jul - 07 sep - 07 nov - 07 jan - 08 mar - 08 maj - 08

the united states, for example. in sweden savings are also high to start with, unlike the united states where they have fallen to historically low levels. there is always a risk that house prices, and also other asset prices such as shares, which have been pushed up by exaggerated optimism or speculation, could plummet. it would appear that swedish price movements can be explained by fundamentals, and that the speculative element has happily been conspicuous by its absence. as property often functions as collateral for loans, a large fall in prices would affect the banks. in addition, developments in the property market affect demand in the economy. rising house prices mean that households can take on new loans to increase their consumption. correspondingly, falling house prices can contribute to subduing demand in the economy. an imf study of twenty property crises in different countries shows that they entailed a fall in prices of 30 per cent. the countries ’ gdp was on average four per cent lower three years after a property crisis had started than it would have been without the fall in prices. 1 the scars in the real economy may well be considerable and given this it is interesting to discuss how a central bank should react to changes in asset prices. in the international debate on asset prices and monetary policy there are several different points of view. a common view is that monetary policy should only react to changes in asset prices to the extent that these affect the central bank ’ s inflation and growth forecasts. one should thus not have a separate strategy for dealing with changes in property prices. others think that a central bank can improve the outcome for inflation and production by reacting to changes in asset prices over and above their consequences for the inflation forecast. two main arguments have been put forward. firstly, monetary policy can alleviate the effect of the price change on the real economy. secondly, the actual knowledge that the central bank will react should reduce the probability of exaggerated price movements occurring. the difficulty lies in determining whether or not prices are increasing at an exaggerated rate. it is not necessarily so that a central bank is better qualified to make such an assessment than the market participants. in addition, there is uncertainty over how monetary policy affects asset prices. the riksbank conducts what is known as flexible inflation targeting. the objective is that the annual change in the consumer price index ( cpi ) shall be 2 per cent, but we also attach some importance to attaining a balance in production and employment. asset price movements are normally included within the scope of flexible inflation targeting