reasoning that led to my conclusion that this constitutes a wellbalanced monetary policy. there are several factors to take into account in this decision. perhaps the most obvious factor is the change in the economic prospects. as i mentioned earlier, the forecast for gdp growth in sweden has been revised upwards somewhat. irrespective of which indicators you look at, resource utilisation is still very low in sweden and abroad and the development of employment is expected to be weak throughout next year. there is also great uncertainty about how strong and stable the recovery will be. it is positive that there has been a clear improvement in the situation on the financial markets. this reduces the risk of a serious setback. on the other hand, the situation on these markets has not completely normalised. central banks around the world will continue to use various measures to help the banks find funding. the extensive fiscal policy stimulation measures that have been and are being implemented in all the major economies have in all likelihood helped to dampen the fall in gdp. but, they are also leading to increases in national debts. this can create anxiety among the households and thus entails a risk that recovery will stop short. nevertheless, the situation looks brighter today than it did a couple of months ago. this in itself justifies a somewhat tighter monetary policy than that which we regarded as a wellbalanced monetary policy in july. however, there are also factors that can have the opposite effect and thus represent arguments for a more expansionary monetary policy. the development of the krona has been stronger than we expected. just as it is difficult to explain the earlier weakening of the krona in terms of developments in the swedish economy, it is difficult to explain the recent appreciation in the krona. the best explanation might be that it is a question of an adjustment towards more normal levels after the exchange rate had strongly deviated from its long - term reasonable rate. however, a strengthening of the krona weakens inflation. as inflation is expected to be slightly below the target over the coming years – and now i am referring to inflation adjusted for the effect of interest rate changes on housing costs – this is something that in itself could be an argument for a more expansionary monetary policy. the brighter economic prospects thus point towards a tighter monetary policy, while the stronger krona points towards a more expansionary monetary policy. i believe that there is more uncertainty about the development of the krona in the period ahead than about the development of economic activity. i therefore

loan ’ s default or cure can only be detected at the level of regional ( e. g. county level ) data on, for example, unemployment or house prices : the former an indicator of the central bank ’ s new loan - loss models have been validated by blackrock solutions, who conducted the loan - loss projection exercise for us in march 2011. bis central bankers ’ speeches affordability, the latter contributing to a measure of negative equity. the probabilistic impact on a given loan ’ s migration from performing to non - performing ( or the reverse ) of regional unemployment, of the estimated loan - to - collateral - value ratio and of other loan characteristics has been estimated by central bank researchers using relatively complex econometric techniques. given estimates of future macroeconomic developments, the estimated model can be used to simulate the evolving performance of the loans in the period ahead. with over half - a - million loans and five years of records it might seem that there is no shortage of data ; but this is not the case. indeed, to some extent it is a question of “ water, water everywhere, nor any drop to drink ”, not just because the current household circumstances are not recorded, but also because so few loans have been remediated and / or so few loan losses have been crystallised how then are we to model the extent to which persistently non - performing loans turn into lender losses? an important modelling judgement call is how far forward to model the process of loan migration and at what point losses on delinquent loans are assumed to crystallise. in practice there has been so little loss crystallisation that the data is not very informative on this. but the reliability of the migration model as a forecasting tool presumably deteriorates the longer it is projected forward, i. e. the more remote the migration simulation horizon. so it is sensible to draw a line a few years ahead. having chosen this simulation horizon, and assuming crystallisation of the defaulted loans at that point 3, the loss forecast requires calculating the lender ’ s exposure at the time of crystallisation, and, above all, estimating the loss - given - default. this loss - given - default will of course be influenced by the projected loan - to - collateral value ratio at the horizon ; that is why projecting future property prices is important. indeed, absent a track record of successful loan long - term modifications designed to turn defaulting loans into sustainable loans,