final parts of the foreign exchange regulation were abolished in 1989. the idea behind an exchange rate regime with a fixed exchange rate is that inflation in sweden will adapt to inflation in other countries. economists usually call this international inflation functioning as a nominal anchor. however, it did not succeed, as sweden did not manage to stay even with other countries regarding inflation and cost developments. the economic policy conducted and the way the economy functioned during the 1970s were not compatible with a fixed exchange rate. this resulted in a series of devaluations, a smaller one of 3 per cent in 1976, two of them, 6 per cent and 10 per cent, in 1977, one of 10 per cent in 1981 and a large devaluation of 16 per cent in 1982. overheating in the 1980s the 1980s thus began with two devaluations in 1981 and 1982. the background to these was that the end of the 1970s and beginning of the 1980s had been very problematic. gdp growth had been poor, and production actually fell a couple of years. unemployment had risen to 3 - 4 per cent, which was then regarded as a very high level. inflation had soared to levels of 15 per cent. the current account and public finances showed a substantial deficit. sweden found itself in a situation with weak real growth and twin financial deficits. i took part in the preparations for the devaluation in 1982, in connection with the change of government that year. the preparations were led by kjell - olof feldt, erik asbrink and michael sohlman. i had the task of making calculations of economic developments over the coming years, based on different economic policy alternatives. two of the alternatives concerned expansionary fiscal policy to bring down unemployment and a strongly contractionary fiscal and monetary policy to eliminate the twin deficits. in both cases, substantial problems remained in the swedish economy. the third alternative concerned a devaluation of 20 per cent in autumn 1982, combined with a price stoppage and pegging the krona to the d - mark. the calculations indicated that industrial production and investment would increase, public finances would improve, the current account deficit would disappear, employment would increase and unemployment would be kept down. after kjell - olof feldt had made contact with the nordic finance ministers and central bank governors, as well as the german central bank governor, the size of the devaluation was altered to 16 per cent and the planned pegging of the krona to the

9 per cent. as recently as december 2021, inflation excluding energy prices was 1. 7 per cent, which was a decline of 0. 2 percentage points compared with the outcome in november 2021. the first signs in actual price developments that inflation excluding energy prices was on the way up came in the january outcome, which was 2, 5 per 1 with a policy rate maintained at zero per cent in 2022. and only a few expected modest increases in 2023. today, inflation is 9. 3 per cent and the riksbank, like other central banks around the world, has raised the policy rate in rather large steps. this is as good an illustration as any of how quickly and unexpectedly things have happened or, to refer to my initial quotation, that decades have happened within a few weeks. a natural conclusion is that this development was genuinely difficult to predict. there are, of course, things that we could have predicted better, such as the boost to inflation that came from the rapid recovery after the pandemic. however, it would also have been necessary to foresee, for example, that russia would invade ukraine in february 2022, that russia would throttle its exports of natural gas to europe and that this would bring electricity prices up to exceptionally high levels. two opposing types of criticism of monetary policy there will always be those who claim, after the event, that things should have been anticipated – and not rarely that they themselves actually did so. one argument in the swedish debate is that today ’ s high inflation is an obvious result of the expansionary policy previously pursued by the riksbank and many other central banks, during the rather long period when the problem was the reverse ; that is, it was difficult to bring inflation up to the target level. it is certainly reasonable to assume that inflationary impulses from, for example, rising energy prices will more easily take hold if demand in the economy has been kept up by an expansionary policy than if it has not. but i find it difficult to push the argument further than that. apart from the fact that there are already convincing explanations for the high inflation, it would require that a monetary policy that has had difficulty for years in bringing inflation up to the target would suddenly result in some kind of all - at - once effect, making inflation instead severely overshoot the target. even though monetary policy works with long and variable lags, this would be an extreme example, with a very odd monetary policy transmission mechanism. 4 in the