indirect taxes and subsidies or from shifts in terms of trade. monetary policy measures as such may likewise have temporary effects on inflation via changes in house mortgage costs, which are included in the measurement of consumer prices. this was the case in 1996, when the average rate of inflation fell below the lower band limit of 1 per cent mainly as a temporary consequence of the riksbank ’ s reduction of its instrumental rate. clearly, monetary policy should not respond to temporary effects on inflation from upward or downward movements in the instrumental rate ; to do so would be to make interest rate policy procyclical and thereby destabilising. the monetary policy reaction to other temporary effects depends essentially on how these affect inflation expectations. if a temporary increase in the rate of inflation is taken, for example, to indicate a more lasting upward shift, so that people adjust their inflation expectations, monetary policy would have to respond in order to prevent the ongoing rate of inflation from increasing. if expectations are unaffected, on the other hand, temporary effects may be of secondary importance for monetary policy. where, then, does the exchange rate come in? apart from its short - run effects via import prices, the exchange rate features in our inflation assessments in two respects. one is that exchange rate movements affect demand in the internationally oriented sector and thereby in time the development of the output gap and ultimately inflation, too. the other is the information which the exchange rate may provide about the development of inflation expectations. while temporary exchange rate fluctuations hardly affect forecasts of inflation one to two years ahead, more lasting tendencies have an overall impact on demand and thereby on the output gap and consequently on the inflation forecast. adjustment after the inflation era sweden is one example of the numerous countries that in the 1970s and 1980s systematically aimed for higher growth and employment with the aid of expansionary economic policies, with less regard for the effects on long - term price stability. the outcome was very different from what had been intended. compared with countries more devoted to stability, for example the netherlands, austria and germany, macroeconomic development in sweden was poorer in many respects. inflation in sweden moved up substantially from the late 1960s onwards, trend growth weakened and the period ended in the early 1990s with a dramatic fall in production, a sharp increase in unemployment and a serious crisis in the financial system. the tendencies in the latter part of the 1980s were not sustainable. the levels of growth, employment and prices for real and financial assets could not be maintained. partly for these reasons, sweden

such a horizontal forum could also work towards cross - fertilising approaches to developing stress scenarios that go beyond extreme but plausible events. finally, i also think that regulatory action might be helpful in a few targeted areas. for instance, this may be the case for non - default losses in central clearing, a topic on which current guidance is limited. indeed, work on this is already underway at both cpmi - iosco and fsb level. we should also assess whether we may need more risk - sensitive approaches to the calibration of ccp capital to ensure comprehensive loss absorption. client clearing may be another area requiring more consistent and transparent approaches, depending also on the findings of the ongoing work by the cpmi and iosco in this area. regulatory action should also be considered to address the diverging interests around the allocation of losses in ccp recovery and resolution. given the high concentration of systemic risk in ccps, a credible and effective framework and full stakeholder commitment are absolutely essential. in this context, i see the following guiding principles. first, we must avoid leaving any private sector funding gaps, as they would result in unacceptable risks for taxpayers. ccps must have arrangements in place to ensure comprehensive loss absorption in all circumstances, in line with the cpmi - iosco principles for financial market infrastructures and the related recovery guidance. second, we should acknowledge competitive pressures and diverging interests in central clearing. it is true that the growth of global otc derivatives clearing has led to intensified oligopolistic competition among ccps. considering also that ccps rely on fees in relation to volumes as their sole source of income, and bearing in mind the present low interest rate environment, it cannot be ruled out that some ccps may search for higher yields through more risky investment practices, lower - cost risk management practices or insufficiently prudent “ fit for clearing ” checks. in a world of mandatory central clearing and an oligopolistic market structure, clearing participants may not necessarily be on an equal footing with ccps when negotiating terms for participation and market discipline may not be optimal. third, ccp participants must continue to bear the bulk of default - related losses. we may well consider increasing skin in the game requirements for ccps in the context of default loss absorption in order to strengthen incentives for prudent risk management, but we cannot turn the central clearing model upside down. the fact remains that the transactions brought to central clearing are initiated by clearing members. against this background