stefan ingves : introduction to monetary policy speech by mr stefan ingves, governor of the sveriges riksbank, at the riksdag committee on finance, stockholm, 26 october 2006. diagrams for the speech can be found on the sveriges riksbank ’ s website http : / / www. riksbank. com. * * * thank you for the invitation to come here! this is my second hearing at the riksdag committee on finance to discuss monetary policy. i thus cannot claim that i have very much experience of these hearings. however, this also applies to some of you who are here for the first time, and i am convinced that it will not present any obstacles to an interesting and rewarding discussion. it is often a good idea to begin with a backward glance to gain some perspective for the current situation, and this time, with so many new members, it may be particularly useful. after the look back, i shall look forward and describe the riksbank ’ s views regarding the economic outlook and monetary policy. during the backward glance i shall assert that the new regime introduced around a decade and a half ago has worked well. we have had an entirely different stability in the development of the economy than before, and at the same time growth has been relatively high. my most important message when looking ahead is that the prospects for the swedish economy are also bright. we see ahead of us continued good growth in the economy over the coming years and a continued improvement in the labour market. at the same time, the rise in inflation is expected to be moderate, but this requires among other things a gradual increase in the interest rate. a look further back … it is now almost one and a half decades since we in sweden were forced to abandon the fixed exchange rate. this was the starting point for the changeover in economic policy that led to both monetary policy and fiscal policy taking on different roles than they had in the 1970s and 1980s. fiscal policy had previously often been overly expansionary and contributed to excessively high inflation. it was now given the main task of ensuring that public finances developed in a way that was sustainable in the long term. monetary policy, on the other hand, was no longer tied to defending the exchange rate in that the krona was allowed to float. its main task was instead to more directly maintain inflation at a low and stable level, by using interest rate changes to affect demand in the economy. the new regime has lived

##ulating at the same time must in my view therefore be taken into account in the monetary policy decisions. a development that i described earlier can be the consequence if the expansion of demand and credit continue to increase at a high rate. the quantity of money and lending, especially to households, are for instance increasing at present at a rate which is probably not sustainable in the long term. the advantages of simple rules for decision - making are that they are easy to explain which can be especially important when establishing credibility for a low - inflation regime. with simple rules for action, it becomes clear what has guided monetary policy decisions. however, as i have shown, this does not necessarily result in optimal policy in every situation in the sense that macroeconomic stability and longer - term price stability are achieved. the difficulties in assessing when demand and the increase in lending are too strong are certainly considerable although this applies by and large to all the assessments we have to make.