of the world gives reason for caution. asset prices, the willingness to take risks, and commodity prices have risen steeply in the past year. the third reason was that property prices risk rising further and with that households ’ indebtedness. in my opinion, encouraging a further increase in indebtedness through a rate cut of 0. 5 percentage points could lead to problems once rates rise. a mild economic downturn there are many indications now that the swedish and international economies have embarked on a stable upswing. this means that the recent economic downturn has been mild in an historical perspective. in 2001 the swedish economy grew by 0. 9 per cent, and in 2002 by 2. 1 per cent. last year the recovery was derailed slightly and the economy grew by 1. 6 per cent. during these three years production fell in only one quarter. for a downturn the rate of growth from 2001 to 2003 was high. this was also reflected in the labour market, where employment held up throughout the period 2001 to 2003. macroeconomic changes the mild economic slowdown is likely a result of institutional changes that have helped increase the stability of the economy. unlike the situation at the beginning of the 1990s the government finances are sound and monetary policy is transparent and predictable. this does not only apply to sweden but also to large parts of the rest of the world. stability has become a guiding principle in the economic policies of oecd countries, among others, and has entailed an increased focus on healthy government finances and stable prices. 1 the process has been helped by the absence of external cost shocks during the 1990s and beginning of the current decade such as the oil crises during the 1970s and 1980s. monetary policy has also benefited from a better government finance situation now compared with 10 - 20 years ago when there was a trend rise in debt ratios, i. e. government debt as a percentage of gdp, in the majority of oecd countries. healthier government finances are contributing to stronger macroeconomic performance. lower borrowing requirements in the public sector contribute firstly to lower real interest rates, which stimulate investment and growth. secondly, stable government finances boost the credibility of monetary policy. during periods of large deficits and burgeoning government debt there is always a risk from a lender ’ s point of view that the government will attempt to reduce the real burden of the debt by eroding its real value through increased inflation. the high interest rate levels that sweden experienced in the wake of the

banca d ’ italia and suerf workshop ‘ the effectiveness of monetary policy in a low interest rate environment ’ welcome address by daniele franco senior deputy governor of the bank of italy rome, 18 november 2020 i am happy to welcome you all to the banca d ’ italia and suerf ’ s joint workshop on ‘ the effectiveness of monetary policy in a low interest rate environment ’. as you may know, we had scheduled this workshop to take place in june, but we had to postpone it, because of the pandemic. we also had to move to a virtual setting and rely on video connections. the workshop addresses issues that are now at the top of policymakers ’ agendas around the world. the pandemic has led to the worst recession in recent history, and the scars that it will leave on the global economy are likely to prolong the low interest rate environment. monetary policy is playing a key role in supporting the recovery and its contribution will remain fundamental in the coming years. the discussion on strategies, targets and tools remains open. today and tomorrow, we will have the opportunity to embark on a wide - ranging debate on the challenges ahead. in my remarks today, i will touch upon a few of them. to begin with, i think we can all agree that the pandemic crisis has further exacerbated the effects of some ongoing long - term trends. some of these trends have already been in place since the great financial crisis and its aftermath. i am mostly referring to the drop in the natural rate of interest1 and to the subdued inflation dynamics. these trends are due to structural changes in macroeconomic relationships and imply a need both to reassess theoretical frameworks and to review the monetary policy strategy and tools. in this respect, the first session deals with monetary policy strategy in such a low interest rate environment. this of course calls into question the issue of the appropriateness of the current inflation target, which is indeed one of the main items on the table in see ex multis neri, s. and gerali, a. ( 2019 ), ‘ natural rates across the atlantic ’, journal of macroeconomics, 62. the eurosystem ’ s monetary policy strategy review. i will not comment further on the strategy review, since it is still ongoing. another important theme in the “ post - pandemic ” environment will be the interaction between fiscal and monetary policy. as we know, fiscal policy worldwide was boldly expansionary