housing market : it is well documented by empirical studies that a rapid increase in debt increases the probability of financial crises and falling prices on the housing market. the economy can also become more sensitive to various shocks if households ( and companies ) are highly 4 see, for example, backman, c, c lutz ( 2018 ) and cunliffe, j ( 2019 ). 5 see finocchario et al. ( 2016 ). 2 indebted. the studies also show that, if the banking system has large exposures to the housing market, financial stability can be threatened. 6 in the riksbank ’ s task of promoting financial stability 7, it is therefore important to ensure that the banks and their borrowers have resilience to shocks that could threaten financial stability. in addition, if financial stability should start to falter, there exists a risk that it would become more difficult to conduct monetary policy. i am well aware that both functional authority and tools lie beyond the riksbank ’ s remit, but as household debt and problems on the housing market affect the way the economy works, this development is also a source of unease for the riksbank. housing prices have been rising for a long time to begin with, i would like to say a few words on how housing prices have developed in sweden. since 2005, they have more than doubled, but the price rise started before then. the fact that housing prices have risen so rapidly for such a long period of time and are now historically high can be explained by factors such as the imbalance between supply and demand for housing, rising real wages and lower taxes, which have increased households ’ disposable incomes. 8 housing prices fell in the autumn of 2017, but have since then recovered slightly. the fall in prices has also affected housing construction, which, after increasing strongly in recent years, slowed down again in 2018 and 2019. over time, the development of housing prices has contributed towards increasing household indebtedness, even if the slightly weaker development in recent years has contributed towards lending for household mortgages now increasing more slowly than previously. all in all, this has led to household debt as a proportion of disposable income ( the debt - to - income ratio ) staying relatively unchanged over the last year, but being expected to continue to increase over the coming years. 9 the debt - toincome ratio for the entire household sector is currently over 186 per cent. this is a high

both problems in adjusting relative wages and unjustifiably high real wages would lead to a rise in unemployment. repo rate has a lower bound a low inflation rate can also make it difficult for monetary policy to be sufficiently expansionary. the economy ’ s real interest rate is comprised of the nominal interest rate minus the ( expected ) inflation rate. as the nominal interest rate has a natural floor somewhere around zero per cent, a lower ( expected ) inflation rate will raise the lowest level that can be attained for the real interest rate. after the financial crisis, many central banks have long been limited by the lower bound for their policy rates. 13 the problem has, however, not been as acute in sweden. although the repo rate was cut to 0. 25 per cent in 2009, it has been higher than this since summer 2010. the problem is rather that it may be desirable in the future to stimulate the economy further, for instance, if the economic recovery comes to a halt. the scope for further cuts in the repo rate may then be limited. the credibility of the inflation target could be impaired finally, it is a problem if monetary policy and the riksbank start to lose credibility. the value of money in modern economies is entirely based on expectations. firmly - anchored inflation expectations and confidence in the central bank ’ s actions therefore comprise the basis for monetary policy. the inflation - targeting policy has successfully built up this credibility by communicating a clear overall target – a particular inflation rate. it has also become possible to gradually give greater consideration to the stability of economic activity as credibility has accumulated, although the primary target has become somewhat less clear as a result of this flexible inflation - targeting policy. however, monetary policy can hardly maintain its credibility if the inflation rate deviates from the target for too long. one question that has been discussed frequently in the wake of the recent financial crisis is whether central banks should use their policy rates to try to mitigate the credit cycle. 14 monetary policy could possibly contribute to this type of stabilisation for a would have been if inflation had averaged two per cent during this period. and according to svensson ( 2013c ), 60, 000 more people are now unemployed than if the repo rate had not been raised since 2010. it hardly needs to be pointed out that such calculations are very uncertain. i have previously criticised svensson ( 2013b ) for focusing on a specific measure of inflation expectations. if one instead uses a different, more accurate, measure