lars e o svensson : where do central banks go from here? speech by mr lars e o svensson, deputy governor of the sveriges riksbank, at a panel discussion, norges bank symposium, oslo, 18 november 2010. * * * the opinions expressed here are my own and are not necessarily shared by other members of the riksbank ’ s executive board or staff. gabriela guibourg has contributed to this speech. it is a great privilege to participate in this symposium and to celebrate the achievements of governor svein gjedrem. i have had the benefit of having very good contacts with norges bank since the mid 1990s. under the leadership of svein and his colleagues and co - workers, i have seen norges bank set up its monetary policy in a way that has made it a model for the rest of the world. norges bank truly deserves the admiration that it receives from central bankers and academics all over the world. in particular, svein deserves credit for the novel interpretation – immediately upon his appointment in 1999 – of the instruction from the ministry of finance to stabilize the exchange rate, namely that the best way to do this in the longer run was to orient the bank ’ s monetary policy towards an inflation target. this would enable the bank to make the best contribution to economic stability and a stable krone exchange rate. as a background to my comments on the topic of this panel, “ where do central banks go from here? ”, let me note that, as the world economy recovers from the recent financial crisis and the great recession that followed, a debate is underway regarding the causes of the crisis and how to reduce the risk of future crises. the role of monetary policy and its relation to financial stability are also under debate. some blame the federal reserve, saying that its monetary policy was too expansionary after 2001 and that this laid the foundations for the crisis. the lesson to be drawn, they argue is that there is a need to modify the framework of flexible inflation targeting and give a greater role to financial - stability considerations. in my view, the crisis was largely caused by factors that had very little to do with monetary policy. instead, it was mainly caused by regulatory and supervisory failures in combination with some special circumstances, such as low real interest rates around the world and housing policy in the united states. neither do i share the view that there is a need to fundamentally modify the framework of flexible inflation targeting. ultimately, my main conclusion for

countries save to finance their deficits, growth is normally decreased a bit. after a few years, the countries can however reap the fruits of a more stable economy, in terms of lower inflation and higher growth. successful programs also have a positive effect on social policy in the countries. expenditure on education and healthcare in the poorest program countires increased by four per cent per capita between 1985 and 1998, and these areas now account for a larger share of the government budgets. countries with imf programs have seen more children in schools, increased literacy and access to clean water, and lower child mortality. swedish participation in the imf sweden is one of the creditor countries in the imf. in the board we share a seat together with the seven other nordic and baltic countries. as well as other country groups, we have an office in washington with representatives who work full time on pursuing our interests on the board. i worked at this office myself for over four years as nordic - baltic representative in the board. our board representatives receive guidance from their home countries on important issues and statements in the board are coordinated among our countries in advance. in sweden, the riksbank has the main responsibility for contacts with washington, but all issues are coordinated with the government offices where the ministry of finance is our contact. in certain cases, there is also consultation with the ministry for foreign affairs. the nordic and baltic countries are small on the board - our combined voting power is just over 3. 5 % of that of the imf as a whole. our opportunities to pursue policies on the board are in having sensible points of view on the proposals that are on the agenda and, together with other countries, trying to influence proposals so that they move in the direction we want them to. to some extent, we have an advantage in appearing independent on the board, since we represent neither the most influential creditors within g7 nor the large group of debtor countries. this means that our statements sometimes have more weight than our voting powers indicate. let me give three examples of issues where our countries have been actively involved in the imf. the first concerns the transparency of the imf. in sweden, we are accustomed to authorities publishing their decisions and their way of dealing with items. many international organisations on the other hand operate behind closed doors. however, the imf has become considerably more open in recent years, and today material on almost all activities is available, not least on the imf ’ s website ( www