crisis at the beginning of the 1990s. there is a substantial difference between the economic developments over the past 14 years and during the decades prior to this period. sweden had an inflation rate much higher than that in germany every year of the 1980s ( see figure 1 ). the 1980s began with two devaluations of 10 per cent and 16 per cent. for a devaluation to be successful, inflation must be kept down afterwards so the country does not lose competitiveness again. however, this was not successful in the 1980s. after the devaluations, sweden ’ s competitiveness declined by around 30 per cent up to the crisis breaking out in 1992 ( see figure 2 ). the 1990s also began with a depreciation of the swedish krona amounting to 20 - 25 per cent when we abandoned the krona peg to the european ecu in autumn 1992. unlike the 1980s, inflation was afterwards pressed down to the same level as germany ( see figure 1 ). we have even continued strengthening our competitiveness through strong productivity growth and moderate wage increases ( see figure 2 ). why did we not succeed in bringing down inflation to the same level as other countries during the 1970s and 1980s? the most important explanations are the history of repeated devaluations, insufficiently tight fiscal and monetary policy, an overheated labour market and deregulation of the credit market with ensuing credit expansion. an important difference compared with the present situation with a clear inflation target is that monetary policy under the regime of that time, with a fixed exchange rate, could not help subdue the overheating as it was detailed to maintain the fixed krona exchange rate. during the 1990s, on the other hand, we succeeded in bringing down inflation to the same level as other countries. however, this required drastic measures. the 1990s began with the most severe crisis in the swedish economy since the 1930s. open unemployment rose to a high point of 9 per cent in 1993. this had a dampening effect on prices and wages. in addition, fiscal policy and monetary policy were very tight. the budget consolidation in the mid - 1990s was very extensive and interest rates were kept at a very high level during a transition period. moreover, the conditions for the riksbank to take action were improved as the bank was gradually given increased independence and in 1999 was given a statutory objective of safeguarding price stability. developments since the crisis have been good on the whole, even regarding other aspects than inflation and competitiveness :

in connection with wage bargaining rounds. the national institute of economic research was given the task of annually producing reports on the economic conditions for wage formation. the results of these changes are clear and positive. since the crisis at the beginning of the 1990s, wage formation has functioned much better than before. the agreements no longer contain flexibility clauses and wage drift is much more limited. the number of labour market conflicts has been lower than before. real wage increases, which reflect what we can buy for our wages, have been better than before, while the nominal increases have been markedly lower than before ( see figure 6 ). the social partners have contributed in a constructive manner to this positive development. the positive institutional changes in several areas – e. g. new regulations for fiscal policy, monetary policy and wage formation - are strongly contributing factors to the favourable developments since the crisis in the early 1990s. conditions for wage bargaining rounds the inflation process has changed in nature in recent years, not only in sweden but also in many other countries. as the inflation - targeting policy has gained credibility, inflation is increasingly determined by inflation expectations. inflation has become lower and also appears to be less dependent on variations in capacity utilisation ( the short - term phillips curve has shifted downwards and become flatter ). capacity utilisation mainly affects inflation through wage formation. however, wage costs still play an important role in the inflation process. for example, the unexpectedly strong productivity growth, combined with moderate wage increases, has contributed to inflation being below target in recent years. wage formation will remain a focal point in the monetary policy analyses, particularly next year when the majority of the collective wage agreements are due to be renegotiated. the level of capacity utilisation and the impact it has on wage formation are also important and topical issues. the oecd calculates what is known as the gdp gap. their interpretation is that capacity utilisation in the swedish economy is already higher this year than is compatible with a low and stable inflation rate. however, calculating the gdp gap and similar measures is a very uncertain process. nor are the measures stable ; they change over time. the national institute of economic research ( nier ) calculates the labour market gap and equilibrium unemployment. the calculation in the most recent wage formation report shows the labour market gap as being close to zero in 2007 and then becoming slightly positive in 2008 and 2009. equilibrium unemployment is calculated at 4. 5 per cent ; it is predicted that this level will be reached next