stefan ingves : introduction on monetary policy speech by mr stefan ingves, governor of the sveriges riksbank, to the riksdag committee on finance, stockholm, 3 march 2011. * * * i was here as recently as two days ago to discuss the development of housing prices and household indebtedness. today, i am here to discuss monetary policy. 1 after several years of crisis management, it feels positive to return to discussing more “ usual ” monetary policy issues. when i was here a year ago, i showed a picture of a skater on the ice. having been out on thin ice, i considered we had returned to thicker ice. today, i would instead say that we ’ re back on dry land. to use a different metaphor, sweden, with its small, open economy, could be described as being a small boat on a wide ocean. the financial crisis required “ sailboat sweden ” to navigate some dramatically stormy waters. after such a traumatic experience, it is natural to try to lift your gaze and ask certain all - embracing questions : where have we come from? where are we now? where are we going? personally, i would be just a little worried if i found myself aboard a boat without knowing where i boarded it, its current position or final destination. let me therefore attempt to give you my answers to these questions as they concern sweden ’ s economy. where have we come from? the years before the financial crisis – the calm before the storm from about the middle of the 1990s until the outbreak of the financial crisis, economic development both in sweden and abroad was characterised by positive growth and low inflation. fluctuations in production and inflation decreased, at the same time as productivity growth in sweden and elsewhere increased. there are many ways of illustrating this development, but one way would be to examine government bond rates in sweden, the euro area and the united states ( see slide 1 ). certain clear patterns can be detected. these include decreased interest rate levels and a reduction of fluctuation in these over time. in addition, from the mid - 1990s, interest rates in various countries developed in a strikingly similar manner. this strong development can be further illustrated by growth in the world economy, which fluctuated between 2 and 5 per cent and averaged almost 4 per cent ( see slide 2 ). all in all, developments from the mid - 1990s until the start of the financial crisis can be compared to a voyage through relatively calm waters, to return to

major fall in exports. on the other hand, there are many indications that the weakening of the krona contributed strongly towards preventing inflation from becoming excessively low. unlike abroad, where inflation became negative, inflation in sweden remained around the target even during the most acute phase of the crisis ( see slide 6 ). note that inflation in sweden here disregards changes in mortgage interest expenditure – it is measured using the cpif. this approach corresponds better with the way that inflation is measured abroad. 2 developments in sweden during the financial crisis differ in several regards from the crisis we experienced during the 1990s, when major problems were present in the swedish economy before the crisis erupted. inflation was very high and the credit market had recently been deregulated. this led to overheating tendencies and the fixed exchange rate eventually needed to be abandoned. in somewhat simplified terms, i usually describe the crisis of the 1990s like this : “ things were quite ok abroad, but sweden was not ok ”. this time, the crisis had its origins in problems on the us housing market, which then had unanticipated consequences. with the bankruptcy of lehman brothers in september 2008, these events turned into a global financial crisis. and in several other countries, such as spain and ireland, problems arose on the housing market. at the same time, the public finances of several countries were not in sufficiently good shape to handle a crisis like this. this was not true of the swedish economy. thanks to regulations on surplus targets and expenditure ceilings, sweden ’ s public finances were in good shape before the crisis broke out. unlike during the crisis of the 1990s, the situation could now be described as follows : “ things were not ok abroad, but sweden was ok ”. there are also other differences if the current situation is compared with the crisis of the 1990s. back then, there were no elements of lending to the banks by the riksbank. on the other hand, loan losses among the swedish banks were enormous, as i clearly remember from my position as head of the swedish bank support authority at the time. now, the situation has rather been the opposite : comprehensive lending from the riksbank, but very limited loan losses on the home market for the banks. how can this be explained? well – as a reflection of the nature of the crisis. back then, in the early 1990s, the banks had suffered for example, in the euro area, the price index hicp measures inflation without the effects of changes in mortgage interest