german d - mark was postponed indefinitely. i had reason to return to these calculations later on during the 1980s and i could observe that they were pretty accurate on most points, except with regard to price and wage developments. i had assumed that inflation and wage increases would adjust downwards to the international level. for devaluation to be successful, price and wage developments must be kept down after the devaluation. however, this was not the case. sweden had an inflation rate much higher than that in germany every year of the 1980s. economic policy was not sufficiently strict during the 1980s to keep down price and wage increases after the devaluations in 1981 and 1982. although public sector finances improved substantially, this was primarily due to automatic improvements resulting from a number of years of good growth. while monetary policy was strict in the sense that both nominal and real interest rates were kept at a high level to protect the krona, at the same time credit regulations were abolished in 1985, which led to a huge credit boom that increased demand and pushed up property prices. the excessive price and wage increases led to sweden's cost level once again deteriorating substantially in relation to other countries. at the end of the 1980s, relative costs per produced unit had increased to the level prevailing prior to the devaluations at the beginning of the 1980s and we once again had problems with the twin deficits in the current account and public finances. the problems were aggravated by an international economic downswing at the beginning of the 1990s and by the fact that household saving increased considerably after the tax reform implemented at the beginning of the 1990s. the property bubble that had arisen in the wake of the deregulation of the credit market burst, which resulted in the whole of the swedish banking system being on the verge of bankruptcy in 1992. large currency flows in autumn 1992 made fiscal policy spending cuts necessary and led to a powerful defence of the swedish krona by the riksbank with interest rates creeping up in stages. in the end, it was necessary to give up. the krona was allowed to float, leaving the peg against the ecu in november 1992, and it depreciated by 20 - 25 per cent. the conclusions i have drawn from developments during the 1970s and 1980s are that the economic policy conducted together with the functioning of the economy during this period could not lay a foundation for macroeconomic stability and good economic growth. price and wage formation that got out of hand in the 1970s, a series of deval

svante oberg : sweden – a low inflation economy speech by mr svante oberg, deputy governor of the sveriges riksbank, at stockholm university, stockholm, 21 march 2006. diagrams for the speech can be found on the sveriges riksbank ’ s website. * * * introduction i shall begin by thanking you for the invitation. it is always a pleasure to come back to stockholm university, where i myself was a student. i have worked with economics for most of my professional life. prior to taking up my post at the riksbank i had, for instance, been under - secretary of state at the ministry of finance, director general of the national institute of economic research and adviser at the international monetary fund ( imf ) in washington. i intend to use the experience this has given me to provide a long - term perspective to the current economic situation. my theory for the day is that " things are better now ". i shall cover the following areas in my speech : the first part will deal with the swedish economy in a slightly longer term perspective going back to the 1960s. there i shall discuss some episodes during the past 30 years that have coloured my perception of the swedish economy and of what is important for monetary policy. the second part will deal with the current economic situation and current monetary policy. swedish economy 1960 - 2005 i shall begin with a description of the swedish economy during the period 1960 - 2005 and start with a picture of inflation in sweden and germany during this period. inflation has been higher in sweden than in germany for long periods of time. during the 1960s we more or less kept pace with germany. however, during the second half of the 1970s and in the 1980s, inflation in sweden was several percentage points higher than that in germany each year. since the beginning of the 1990s, inflation in sweden has once again been roughly the same as that in germany. sweden has become a low inflation economy. what, on the whole, has happened since the 1960s? to illustrate this, i shall talk about some of the episodes of the past 30 years that have had great significance for economic developments and for my own view of the swedish economy. i have been able to follow the economic policy decision - making process connected with these episodes at close quarters from my various posts in public administration. i would like to emphasise that this is my personal view of developments and not the riksbank ’ s official view. the episode i will talk about include the cost crisis