policy in this context. i therefore intend to discuss these questions one by one and in relative detail. can the repo rate affect housing prices and lending? it is probably true that the effect of a typical change in the policy rate on housing prices and lending to households is on average not very large. in addition, the policy rate is a blunt instrument when it comes to influencing housing prices and lending, as it is an interest rate that applies to the whole economy. this is why more specific tools, what are known as macroprudential tools, are generally perceived as more appropriate than the policy rate for counteracting this type of specific imbalances. but the effect of the policy rate most likely varies quite substantially depending on the circumstances prevailing at a specific time. in some situations it may be enough to make fairly limited increases to subdue an overly rapid upswing in the housing market, for instance, if the central bank combines these increases with communication emphasising that current developments are perceived as cause for concern. 13 small interest rate increases then function more as a concrete " reminder " that the central bank is concerned over king ( 2012 ), p. 12. imf ( 2013 ), p. 3. see, for example svensson ( 2012 ). note that it may sometimes instead be a case of refraining from cutting the rate where this might otherwise have been justified. bis central bankers ’ speeches developments, but it is rather the communication in itself that has the dampening effect. in this case, the impact on the rest of the economy need not be so great either. the fact that communication on monetary policy can play an important role in this context is emphasised by, for instance, mark carney, governor of the bank of canada and soon to be governor of the bank of england : “ [ p ] rivate agents may choose to accumulate less debt if they understand that a broad - based build - up of debt is likely to cause the central bank to raise interest rates. ” 14 monetary policy is expansionary it should be fairly clear that it is precisely this type of " signalling strategy " that the riksbank has used. monetary policy since the crisis has not entailed using sky - high interest rates to stop an upswing in lending and housing prices, at any cost. what we have tried to do is to find a suitable balance to be able to support the recovery, without “ pressing too hard on the accelerator ”, thereby contributing at least at the margin to

an analysis using hindsight and comparing inflation outcomes with the target. there are a number of reasons why from 1993 to 1995, monetary policy was aimed at preventing the temporary inflationary impulse that arose in connection with the krona being allowed to float becoming entrenched and leading to an increase in the underlying rate of inflation. bis central bankers ’ speeches inflation may deviate from the target, despite monetary policy being conducted accurately. it is therefore necessary to modulate the analysis and see which factors explain why cpi inflation has on average undershot the target. the prices in the swedish cpi include a component that reflects households'mortgage interest expenditure. when mortgage rates rise, this component contributes to pushing up cpi inflation and, vice versa, when mortgage rates fall, it pushes down inflation. normally, the variable mortgage rates follow the development of the repo rate fairly closely. this means that when the riksbank cuts the repo rate to increase activity in the economy and gradually bring up inflation, the initial result is that cpi inflation falls, that is to say, the direct impact on inflation is " in the wrong direction ". this is why the riksbank often allows monetary policy to be guided by the cpif inflation measure – a measure of underlying inflation that is not directly affected by changes in mortgage rates and therefore is not impacted by this effect ( see figure 4 ). the fact that the cpi is impacted by changes in the interest rate in this way is of course something the riksbank was aware of when the inflation target was introduced. the choice was still made to define the target in terms of the cpi, as the cpi is a broad price index that represents normal purchases and is familiar to the general public. but as the riksbank has pointed out, measures of underlying inflation are also used to obtain indications of the more lasting inflationary pressures. cpi inflation is constantly affected by temporary factors, which there is no reason to counteract with monetary policy – for instance, the direct effect on interest expenditure of the riksbank's own monetary policy. underlying measures, such as the cpif, have thus often been used to guide monetary policy. 2 twenty years is a long time, and one might expect that the effects of fluctuations in interest rates on the interest - expenditure component in the cpi would offset one another. the average inflation rate according to both the cpi and the cpif would therefore be roughly the same. however, this is not the case. the average rate of inflation measured in terms