inflation target? this question is slightly more difficult to answer. how developments in the asset markets, such as the housing market, will affect monetary policy for a central bank with an inflation target is a subject debated all over the world by academics and economic decision - makers. the problem can be formulated roughly as follows : the increases we have seen in household indebtedness are not sustainable in the long term ; household debts cannot grow twice as fast as incomes over long periods of time. a downward adjustment must therefore be made to the rate of measured as an annual percentage change in the monthly purchase price coefficient in statistics sweden ’ s figures for house prices. increase in household indebtedness, compared with the present rate. it is not clear how this adjustment will occur. normally this happens at a gradual rate as an increasing number of households realise that they have borrowed as much as their finances can tolerate. however, the adjustment can also occur more suddenly, and the higher the debt ratio becomes and the more property prices increase, the greater is the probability that the adjustment will not be orderly. what we remember from the beginning of the 1990s is that this type of development can have very marked effects on the real economy. as i see it, it is quite natural that we at the riksbank should take into account the risk of this kind of setback further ahead. to some extent one might say that we have contributed to this development through a successful inflation - targeting policy and low interest rates. what a central bank can do to manage this kind of risk is to constantly remind everyone of the existence of the risks, through speeches and documents. we can also bring forward changes in the policy rate that are already motivated with regard to inflation targeting in our monetary policy decisions. we have taken both measures. the hope is that monetary policy and the riksbank ’ s arguments may contribute to reducing the risk of an overly rapid and far - reaching build - up of debt, and thereby also reduce the risk of a more abrupt adjustment of household indebtedness further ahead. it has sometimes been claimed that these considerations have meant that the riksbank has given less priority to the inflation target and begun to regard house prices and household borrowing as target variables. this is not the case. the purpose of taking into account household indebtedness and house prices is to safeguard the inflation target and a stable development in the real economy, also in the longer term. these considerations could and should, in my opinion, be accommodated

reserve coins and notes fx reserve fx debt fx debt assets liabilities assets liabilities note. per cent of gdp sources : statistics sweden and the riksbank figure 2. central bank balance sheets before the financial crisis note. per cent of gdp. refers to 2006. the breakdown into asset and liability classes should be seen as indicative sources : respective central bank and national statistics sources 12 figure 3. central bank balance sheet totals, 2006 and 2017 rb fed ecb snb note. per cent of gdp sources : respective central bank and national statistics sources figure 4. two levels of short - term interest rates 1. 0 1. 0 average interest rates in the repo market for government bonds treasury bill, 3 months forward rate, 3 months 0. 5 0. 5 0. 0 0. 0 - 0. 5 - 0. 5 - 1. 0 - 1. 0 note. per cent. the forward rate reflects the expected level of the repo rate over the next three months. sources : macrobond and the riksbank 13 figure 5. central banks ’ cost - free capital equity coins and notes rb fed ecb snb note. per cent of gdp sources : respective central bank and national statistics sources figure 6. the riksbank ’ s government bond holdings note. nominal amounts, sek billions. forecast up until june 2019, then a technical projection with the assumption that no further reinvestments are made. the development of the holdings is also affected to a certain extent by the market prices of the bonds and which bonds the riksbank chooses to reinvest in. the vertical line marks the shift between forecast and technical projection. source : the riksbank 14 see sveriges riksbank ( 2017a ). see archer and moser - boehm ( 2013 ). the major features of the swedish operational framework are not unique, but common to monetary policy in most countries. regulatory frameworks set other liquidity requirements for banks, but the liquidity need not consist of central bank money. up until 2009, banks ’ remunerated liquidity surplus was not part of the monetary base in sweden, but in 2009 the definition was changed to include the liquidity surplus ( see sveriges riksbank, 2009 ). the new definition is more in line with international recommendations and practice, but, in my opinion, is a poor measure of what the literature refers to as the “ monetary base ”. this is a simplified description of the riks