of the pledge covers the loan. while one cannot be absolutely sure about the appropriate long - term price level for houses and tenant - owned apartments, the estimates the riksbank has made in various contexts do suggest that fundamentals such as incomes, interest rates and residential construction provide a fairly good explanation of both house prices and loans in the past decade. this reduces the risk of house prices falling sharply. moreover, the speculative elements in the housing market are probably small. one reason for this is that swedish households, unlike households in a number of other countries, buy housing to live in rather than to make a profit. they do not buy a house merely to be able to sell it a little later and make a capital gain. this means that prices are not forced up in the same way as in a financial bubble like the one we saw on the stock market not so long ago. neither is it remarkable that households have enlarged their debts so much since the mid 1990s. debt ratios were low after the crisis in the early 1990s. house - holds became more interested in borrowing at the same time as the inflation - targeting regime gained increased credibility and the future became 2 / 5 less uncertain. as it became possible to lower real interest rates, borrowing became cheaper. low and stable inflation expectations also meant that in the long run households could count on nominal interest rates being lower than before. it is conceivable, moreover, that the low - inflation regime has enabled households to borrow more on account of low interest expenditure. can there be a setback for consumer demand later on? thus, neither the high level of debt nor the high house prices are considered to constitute a threat to the banking system. but could households ’ inflated balance sheets tend to subdue consumption and growth later on? is there a risk of households being forced to cut back sharply on consumption when interest rates sooner or later move up? and how will rising interest rates affect house prices? will the decline in household wealth ( in the form of housing ) that could result from higher interest rates lead to decreased consumption? these are questions we try to take into account when assessing the economic outlook on which monetary policy is based. there are no simple answers here either ; as always, the decisions have to rest on assessments. most things suggest, however, that the adjustments we can foresee after a future increase in interest rates belong to the normal transmission mechanism and will therefore occur in orderly forms. provided households ’ borrowing decisions have a rational basis and accordingly include realistic

shall be allowed to vary. in practice, it is reasonable to assume that this takes place in consultation with the government, not least because sweden cannot decide on this unilaterally. control is exercised in various ways to ensure that monetary policy is conducted in accordance with the law and the intentions of the democratically appointed government authorities. what is involved therefore is not at all complete independence. the government authorities naturally exercise control of how the riksbank performs its work. we on the executive board of the bank have also responded to the consequences of this independence by the way in which we have organised the monetary policy decision - making process. i shall here deal briefly with the government authorities ’ control of the riksbank and the bank management ’ s response to increased independence. the control of the riksbank by the government authorities the government authorities exercise control of the riksbank in at least four different ways : 1. the riksbank is an authority subject to the riksdag. the bank was previously controlled by the riksdag ’ s standing committee, the governing board. in the new organisation which started on 1 january 1999, the governing council appoints the six members of the executive board, the governor and the five deputy governors. however, these appointments take place for different periods of time. this means that the governing council renews a mandate or appoints a new deputy governor each year. in this way, the riksdag ’ s committee, the governing council, can indicate discontent with the policy carried out by the riksbank ’ s executive board each year. 2. the chairman and vice chairman of the governing council take part as a rule in executive board meetings. they have a right to speak but not the right to vote or make proposals. in this way, these persons have a complete insight into the riksbank ’ s work and can assess the quality of the executive board ’ s work. 3. twice a year, the governor of the riksbank and sometimes another executive board member appear before the riksdag ’ s standing committee on finance to give a report on the policy of the riksbank. this takes place in connection with a written report on the policy carried out and the current state of the swedish economy. 4. finally, it is important to remember that the assignment to the riksbank is given in the form of an ordinary law. it is inter alia formulated that the riksbank shall maintain stable prices. this means