also, in some sense, preserved the obstacles to swift and orderly liberalisation of capital controls. if parliament had not passed the emergency legislation in october 2008, thereby ensuring that there was a functioning banking system and that domestic deposits were secure, if capital controls had not been introduced in november 2008, if we had not been so successful in repairing domestic balance sheets, if the economic recovery had been weaker and the rate of return on domestic assets had been lower, then the domestic assets of the old banks would have been worth much less, as would the offshore kronur. in this scenario, these positions might have exited iceland long since, at just a small fraction of the value they had just before the resolution of the old banks. instead, the domestic assets of the old banks amounted to 25 % of gdp and the stock of offshore kronur was estimated at around 15 % of gdp. it was clear that free exportation of these positions without mitigating action would have resulted in a new currency crisis, with potentially serious effects on financial stability. that was both economically and politically unacceptable. as a matter of fact, the population had been promised solutions to these problems entailing no negative effect on the exchange rate. the icelandic authorities have publicised three versions of their capital account liberalisation strategy : the first in 2009, the second in 2011, and the current one in june 2015. it was under the second strategy that the stock of offshore kronur was reduced through a series of auctions. that strategy, however, did not include a solution to the problem of the old banks. the split between the old and new banks was only finalised towards the end of 2010, and in any case, the old banks were largely exempted from the controls until march 2012. the current strategy is based on a guiding principle and a set of criteria that any proposed solutions would have to fulfil. if i explain these to you now, you will better understand what we have done to date and what is forthcoming. an overall guiding principle in the design of the liberalisation strategy was that it should entail comprehensive, cautious, and clearly communicated solutions, allowing the country to lift capital controls without undue risks to macroeconomic and financial stability. the strategy is comprehensive in the sense of mitigating, in a sufficient manner, the risk that excessive capital outflows would overburden iceland ’ s small foreign exchange market and inflict systemic negative externalities on the general public. in particular, it

our most basic questions about them : are available measures suitable indicators of true inflation expectations by households and businesses? how are expectations formed – and in particular what are the respective roles of central bank talk, central bank actions, and actual inflation outcomes? and how do expectations influence price and wage setting? in short, although i believe that inflation expectations are critical to assessing the inflation outlook, i cannot be sure ( particularly in real time ) that our expectational measures are accurate and so cannot know what precise role expectations play in wage and price dynamics. in sum, then, i found reading the paper to be useful and instructive because it reminded me not only of what we have learned but also of what we still do not know. james h. stock and mark w. watson ( 2007 ), " why has u. s. inflation become harder to forecast? " journal of money, credit, and banking, supplement to vol. 39 ( february ), pp. 3 - 33.