the fed can use to implement monetary policy. thus, alternative implementation tools are required. this brings me to the next rate i want to talk to you about, the interest rate on reserve balances. depository institutions have access to three types of discount credit from their regional federal reserve bank : primary credit, secondary credit, and seasonal credit, each with its own interest rate. we use the term “ discount rate ” as a shorthand for primary credit rate. most credit at the discount window is done at the primary credit rate. for more information, please refer to board of governors ( 2022 ). the list of banks that borrow money from the discount window is published with a two - year delay. discount window borrowing increased recently following the failure of silicon valley bank and signature bank. on march 12, 2023, the fed announced a bank term funding facility to complement the funding available at the discount window ; see board of governors ( 2023 ). for a detailed discussion about the stigma associated with discount window borrowing, please see carlson and rose ( 2017 ). - 5implementation tool 2 : interest on reserve balances close to the bottom of the demand curve is the interest on reserve balances rate denoted by iorb rate in figure 2. this is the interest rate the fed pays on reserves eligible institutions keep at federal reserve banks. 8 this interest rate is the primary tool the fed uses currently to implement monetary policy. 9 in the graph, observe that the federal funds rate is close to this rate. the economic force that keeps these two rates close to each other is called arbitrage, the simultaneous purchase and sale of funds ( or goods ) to profit from a difference in price. arbitrage keeps prices of financial instruments with similar payoffs close to each other. 10 i will illustrate how arbitrage works with an example that makes it clear why the federal funds rate cannot be much lower nor much higher than the interest on reserve balances rate. arbitrage keeps rates close to each other let ’ s assume that the federal funds rate is 4 percent and the interest on reserves is 4. 5 percent. banks will quickly realize that they can borrow funds in the federal funds market at 4 percent and deposit those funds at the fed and earn the interest on reserve section 19 ( b ) ( 2 ) of the federal reserve act requires each depository institution to maintain reserves against certain liabilities of the bank. the board ’ s regulation d ( reserve requirements of depository institutions in

mr bergstrom reports on why sweden has changed its stabilisation policy regime speech by mr villy bergstrom, a deputy governor of the sveriges riksbank, the central bank of sweden, at the 140th anniversary of the establishment of norrbarke sparbank in smedjebacken, darlana on 21 may 1999. it is obvious to everyone that we live in a different economic world than we did ten years ago. ten years ago, registered unemployment was 1. 3 per cent and inflation 7 per cent. now inflation is nonexistent while total registered unemployment is over nine per cent. why has such a drastic change in the economy taken place? what is characteristic for the new economic conditions? are there alternatives to the policies now being carried out? background since the second war, sweden, in principle, had a fixed exchange rate. however, in practice, it was not particularly fixed after the mid - 1970s. from autumn 1976 to autumn 1982, sweden devalued five times. i will come back to the sorry history of 1982 - 92. in autumn 1992, the fixed exchange rate was abandoned and the krona immediately fell by 11. 5 per cent. thereafter the krona declined further so that the total fall in the exchange rate to the lowest position of 13 december 1993, was 31. 5 per cent. note that the starting point for the fall in the value of the krona in november 1992 was a cost level that was 25 per cent lower, measured in common currency, than it had been in 1976. this was a failure for stabilisation policy. a good illustration of this is the industrial worker ’ s wage in 1975 and 1994. in 1975, an industrial worker earned 27 kronor per hour on average while in 1994 the hourly wage was sek 95. however, if 1975 ’ s hourly wage is recalculated at the 1994 price level, the 1975 wage was worth sek 107 in 1994. thus, twenty years of trade union struggle when nominal wages rose by an average of 6. 9 per cent per year, resulted in a decline in real wages of 12 kronor per hour in 1994 ’ s prices. however, it was not just trade union policy that failed. it was just as much a failure for the government ’ s stabilisation policy. how could it have been so bad? stabilisation policy activism the large devaluation of 16 per cent that the newly - appointed palme government carried