just five years, the housing bubble collapsed and asset values have fallen dramatically. the debt levels, however, remain, impeding our ability to recover from this recession. i would argue that the result of our short - run focus in 2003 was to contribute to 10 percent unemployment five years later. that said, i am not advocating for tight monetary policy. i ’ m advocating that the fomc carefully move to a non - zero rate. this will allow the market to begin to read credit conditions and allocate resources according to their best use rather than in response to artificial incentives. more than a year ago, i advocated removing the “ extended period ” language to prepare the markets for a move to 1 percent by the fall of 2010. then, depending on how the economy performed, i would move rates back toward more historic levels. i want to see people back to work, but i want them back to work with some assurance of stability. i want to see our economy grow in a manner that encourages stable economic growth, stable prices and long - run full employment. if zero interest rates could accomplish this goal, then i would support interest rates at zero. in my written testimony, i have included three speeches that describe in more detail my position on monetary policy. monetary policy cannot solve every problem. i believe we put the economy at greater risk by attempting to do so. thank you, mr. chairman. i look forward to your questions. bis central bankers ’ speeches

achieved through interest policy. although the rule applied to the price level rather than to inflation and was not forward looking, it is a clear parallel to the rules of thumb that are used today by those central banks that target inflation. sweden ’ s price stability norm in the 1930s lasted only a few years and was followed by a return to a fixed exchange rate regime. during those years, however, it performed the central function of stabilising expectations as well as prices. this was important not least because to some extent it helped shield sweden from the global economy ’ s depressive impulses and thereby contributed to the recovery being speedier than in most other countries. here i should perhaps add that although this swedish price stability “ experiment ” attracted a good deal of attention at the time, it certainly did not leave any deep or lasting mark on the modern approach to inflation targeting. in the aftermath of the depression and the second world war, keynesianism gained ground. the introduction of inflation targeting in sweden in the 1930s was therefore not as pioneering as when this kind of regime was introduced in the early 1990s, first by new zealand and later by others. a great advantage with a regime that explicitly targets inflation, is that the central bank adjusts the interest rate continuously in the light of inflation prospects. compared with a fixed exchange rate regime, imbalances can then be prevented from building up to the same extent. a slight upward adjustment of the interest rate at an early stage, to reduce the risk of inflation picking up, is something quite different from having to hike the short - term interest rate in order to defend a fixed exchange rate. as a personal reflection i can say that explaining the importance of low inflation is much easier - not least for a central bank governor - than the task of selling the advantages of a stable currency. this is particularly true as the latter task becomes increasingly pressing if the economy has been hit by problems with costs and is facing speculative attacks. some of you may remember that for a few days in the autumn of 1992 the instrumental rate in sweden was raised to as much as 500 per cent. in my view, this is probably one important explanation why sweden is not a member of the erm system - at least not at this stage. the challenge during the 1990s for the inflation targeting countries has been to build a rigorous framework around the new regime. answers have been needed in particular to questions like the following : what rate of inflation should be targeted, what index should be used, are bands around