of retailers who will sell the product. this means that swedish costs, such as wages and rent paid for premises, also play a part in the price the retailer charges for the goods. naturally, the demand for the product is also an important factor. in other words, the traditional supply and demand relationship in the swedish market is important to the endprice that swedish consumers have to pay for the imported goods. there are studies indicating that domestic cost components may comprise as much as 75 per cent of the end - price. 2 arguing that the riksbank cannot affect imported inflation is therefore simplifying rather too much. on the other hand, it may be the case that during the prevailing changeover process it may be quite reasonable to allow inflation to be below ( or in a different situation, above ) the inflation target for a period of time. this lies within the boundaries of the flexible inflation targeting the riksbank conducts. a policy of flexible inflation targeting means that we always consider how large a deviation from the inflation target might be acceptable, and whether we can allow a little more time before bringing inflation back in line with the target. another challenge is the low interest rates. at present, the riksbank ’ s key rate is at an historically low level, although we are in the upturn phase of the economic cycle, at least this appears to be the case in our view of recent growth and our forecast for future growth. at the same time, one cannot rule out the possibility that inflation might remain low for a long period of time. if economic activity should burstein, ariel, martin eichenbaum, and sergio rebelo ( 2005 ), " large devaluations and the real exchange rate ", journal of political economy, vol. 113, no. 4, august 2005, pp. 742 - 784. 6 / 7 decline substantially, the problem will be that there is little scope for further stimulation using monetary policy. there is then a risk that the riksbank would lack the means to manage its stabilisation policy task. on the other hand, if we continue to have very low interest rates at the same time as the growth rate is high, there is a risk of imbalances arising in the housing market. conducting flexible monetary policy means being prepared to deal with this type of economic shock. the bank is therefore working on further clarifying the principles published in 1999 that explain how the riksbank ’ s inflation target will be applied

a calmer development in house prices and lending to households. it can hardly be claimed that the policy conducted by the riksbank during the recovery from the crisis has been tight or that the current policy rate level does not contribute to boosting economic activity. i also think that in this context it is useful to look at the international debate. although the general view is that macroprudential instruments are normally preferable for counteracting this type of imbalance, there is also a lively debate on what role the policy rate should play. 15 in this debate, it is not assumed that the policy rate is entirely ineffective and insignificant, and " the jury is still out ". a dubious counterfactual experiment i would like to give an example from the swedish debate, where i believe one has taken the potential of monetary policy to influence expectations too lightly. as i mentioned earlier, it has been claimed that up to 60, 000 more people would have had jobs if the riksbank had conducted a different monetary policy after the crisis and kept the repo rate at the level of 0. 25 per cent to which it was cut in july 2009. 16 when the riksbank began to raise the repo rate in the middle of 2010, the situation was such that the swedish economy had recovered surprisingly quickly from the crisis. growth was record high, about 6 per cent in annualised terms in the first quarter, and basically all leading indicators of economic activity were pointing upwards. household lending, which had increased at double figures in terms of annual changes prior to the crisis, had begun to slow down, but the increase in credit was still 9 per cent, far above the increase in disposable income. at the same time, inflation measured in terms of the cpif was close to 2 per cent. i find it difficult to see that it would have been realistic to declare in this situation that the repo rate would not be raised, but would remain at 0. 25 per cent for the foreseeable future. the expectations this would have created among households and on the credit and housing markets would most likely have been very difficult to manage. such a policy might be appropriate to try to " kick - start " an economy that has suffered a severe crisis, where housing prices have already fallen and households are trying to reduce their debt. but for countries that are not in this situation, and where debt and housing prices remain high and are increasing, it does not appear to be a realistic policy