the monetary policy process. when an interest rate decision is to be made, the process starts in one way or another with the simple theoretical framework. as i noted earlier, this captures fairly well the intuition behind flexible inflation targeting – that a well - balanced monetary policy concerns finding a suitable balance between stabilising inflation and stabilising the real economy. each of us involved in making the policy rate decision has some version of the bis central bankers ’ speeches theoretical framework in our head, even if it is probably often fairly implicit. at the other end of the process is the media image, with concrete repo rate decisions. the basic question is how we can best go from the simple theoretical analysis into actual policy. there is a balancing act to achieve here : on the one hand, one wants to retain sufficient clarity and structure in the process as given by the theoretical framework. but on the other hand, one does not want to provide an overly simple and thereby perhaps misleading picture of monetary policy and the deliberations that we have to make in practice. what i have talked about here today concerns the link between theory and practice, and more specifically why the connections between them are not so simple. the interesting but difficult challenges faced when going from theoretical analysis to practical policy are something the riksbank – and presumably also other central banks – spends a lot of time and energy managing. these challenges may not be so well - known outside of the central bank world and i hope that i have now been able to provide some insight into them. bis central bankers ’ speeches

figure 1 mainly reflects an international fall in risk premiums and, as so often in the past, it seems to be the development of interest rates in the united states that sets the tone. on this occasion it was probably the federal reserve ’ s plans to purchase additional long - term assets that had a downward effect on risk premiums. 4 my assessment is that risk premiums have been very low, and perhaps even negative, a view that is supported by a number of studies. 5 i think the recent surveys have probably provided a fairer indicator of monetary policy expectations than forward rates. this is not to say that conducting a survey of expectations is the ideal way to measure monetary policy expectations. 6 however, one advantage of surveys is that they constitute more direct and more robust measures of monetary policy expectations, as they are not affected by risk premiums, which have been more difficult to assess than usual recently. according to the prospera survey, monetary policy expectations two years ahead were also below our repo - rate path during the autumn. however, the prospera survey published after our repo rate decision shows that expectations of the reporate are now almost entirely in line with the riksbank ’ s repo - rate path. however, we should not limit ourselves to forward rates and surveys when trying to determine monetary policy expectations. interest rate forecasts made by other analysts and model forecasts that reflect historical links are also useful indicators of expectations. these indicators also support the assessment that forward rates have been lower than other measures of market expectations over the last six months. i have wanted to discuss this theme partly because it is current and relevant, and partly because it illustrates how we must adopt a stance in the course of our decision - making process even if clear and unequivocal background information is not available. as i see it, it is important to try to come to a decision on the basis of many different sources of information. forward rates are an important source but we need to better understand risk premiums and their variations over time. monetary policy expectations and the krona exchange rate the debate on the role of market expectations in monetary policy has also to a great extent concerned how they affect the swedish krona. economic theory says that when there is an upward shift in monetary policy expectations in sweden then, all else being equal, the krona should strengthen at the same time as swedish interest rates increase relative to interest rates abroad. we should, in other words, see a positive link