to a rapid future increase in inflation. the board ’ s majority therefore considered that an immediate tightening was not needed. with inflation expectations firmly anchored around the 2 % target, we judged there was scope for waiting with an interest rate increase. calmer monetary policy discussion some of the earlier autumn conferences were preceded by monetary policy discussions that were rather intensive. in that respect the past year has been relatively calm, even though the situation has changed so rapidly. last autumn there was, of course, considerable anxiety but the riksbank ’ s quick succession of interest rate cuts was well received. in sweden, moreover, we were spared most of the european discussion about political pressure on monetary policy. as i see it, this was partly because our policy framework provided such clear arguments for our actions – inflation would turn out to be below the target if the interest rate was not reduced. during the past year the riksbank ’ s appraisal of economic activity and inflation prospects has been revised about as much as and more or less concurrently with the opinions of other observers. the sizeable changes in economic assessments are thus something we have in common with others. individual economists and analysts have naturally voiced views or criticism from time to time but i at least have not encountered more concerted criticism of our economic and inflation assessments. ( figure 1 ). the path of the krona last autumn generated more heated discussions. the riksbank saw the depreciation as essentially connected with the international financial unrest. this made investors more averse to risk, with effects that hit small markets in particular. other observers attached greater weight both to what they perceived as a lack of clarity in monetary policy and to structural problems in the swedish economy and sweden ’ s position outside the euro area. the risks in the latter respect were presented in a rather lurid light. as regards interventions, the riksbank has been very restrictive in recent years but early last october we found they were called for. the marked depreciation of the krona did not reflect the fundamental situation in the swedish economy. it is seldom possible to demonstrate clear effects of interventions and that could not be done on this occasion, though the depreciation was broken during the day in question. later in the autumn the krona appreciated again. it seems to me that two main factors lie behind the krona ’ s appreciation in the past twelve months. one is a normal rebound from last autumn ’ s excessive weakening. this happened during the winter and was particularly pronounced because the

. this becomes particularly important when conditions are difficult, when there is a snow storm raging at sea. this – in a nutshell – is what my speech today will be about. first, however, it may be interesting to look at how we sailed into the storm. from fair weather to the perfect storm – what went wrong? the metaphor of the different layers in turner's painting can be used to describe the causes of the current crisis. global imbalances were built up if we are to understand the origins of the crisis, we cannot ignore certain factors in the macroeconomic landscape. this applies in particular to the major global imbalances that were built up over a long period of time. in the rapidly - developing economies in the oilproducing countries and asia, particularly china, domestic saving reached a level that was higher than required to fund domestic investments. this led to substantial current account surpluses. large amounts of capital were built up which sought an outlet on the global financial markets. these were used, for example, to buy assets in the west. at the same time, the economies in the west, especially the usa, experienced an unusually long, uninterrupted period of favourable conditions with strong growth and low inflation. policy largely focused on maintaining these good conditions. it was possible to stimulate domestic demand at the cost of a gradually increasing current account deficit. the large capital flows on the financial markets helped to keep interest rates down. with consumer prices held in check, it was also felt that there was no real reason to conduct a stricter monetary policy. the result was that significant global imbalances arose – a lasting savings surplus in some countries and a deficit in others. image 2 : current account deficit as percentage of gdp kina sverige usa - 2 - 2 - 4 - 4 - 6 - 6 - 8 - 8 - 10 - 10 kalla : imf image 3 : credit spreads * for corporate bonds in the usa basis points aaa baa high - yield * the difference between the yield on corporate bonds and the yield on treasury bonds. source : reuters ecowin the markets priced risk incorrectly this also laid the foundations for changes in the financial landscape. the good supply of capital available for investment and the low interest rates for risk - free assets increased the demand for assets with a higher yield, a ” search for yield ” arose. however, investors all over the world, including many major banks, largely ignored the fact that, in the long term,