mr. backstrom ’ s opening remarks at the conference on monetary policy rules opening remarks by the governor of the bank of sweden, mr. urban backstrom, at the conference on monetary policy rules, in stockholm, on 12 - 13 / 6 / 98. it gives me great pleasure to open this conference, which is a joint arrangement by sveriges riksbank and the institute for international economic studies. first of all i want to extend a warm welcome both to the authors of the seven interesting papers and to all the discussants who will be participating in our proceedings. all those who are attending the conference are likewise heartily welcome and we hope they will take an active part in the series of discussions. for us at the riksbank, as well as for me personally, the opportunity of welcoming such a large assembly of leading international experts and central bank representatives is a notable landmark in the practical task of restoring price stability in sweden. monetary policy has attracted a great deal of research in recent years. much of this research work has concerned major practical issues that are highly relevant for those of us who are engaged in monetary policy ’ s daily round. i should like to take this opportunity of thanking all of you here who have made contributions in this field. my thoughts go, not least, to torsten persson and lars svensson, who also as advisors have provided valuable assistance to us practitioners to the riksbank. one thing is clear : the sounder the theoretical foundation for monetary policy, the easier is the life of a central bank governor. sweden on the way to establishing price stability there has been something paradoxical about swedish economic policy. after the period of generally high inflation that started with opec 1, sweden was one of the last of the industrialised countries to re - focus economic policy on price stability. the notion that a trade - off exists between inflation and unemployment lived on in sweden for longer than in other countries. it took rather a long time for the drawbacks of a level of inflation that was relatively high, for an industrialised country, to be widely recognised. at the same time, sweden has a long tradition in the field of central banking. the riksbank, founded in 1668, is the world ’ s oldest, still - functioning central bank. this gives us three hundred and thirty years experience. it was in sweden, too, that the first banknotes — in europe at least — were introduced in the seventeenth century. a monetary policy focus on price

stability, which is one of the themes for our forthcoming discussions, has always been an important item on the central bank policy agenda. a well - known swedish economist, knut wiksell, was a clear exponent of the idea in the late nineteenth century. as it happens, he addressed an audience on the subject here in stockholm a hundred years ago almost to the day, namely on 14 april 1898. in one of his books he wrote : “ if prices rise, the rate of interest is to be raised ; and if prices fall, the rate of interest is to be lowered ; and the rate of interest is henceforth to be maintained at its new level until a further movement of prices calls for a further change in one direction or the other. ” just over three decades after his address in stockholm, sweden had to leave the gold standard in september 1931. the objective of monetary policy was declared to be to use “ every available means to maintain the swedish krona ’ s domestic purchasing power ”. in this way the riksbank was the first central bank to declare openly that its monetary policy norm was price stabilisation. notwithstanding this long tradition, after inflation ’ s rising trend in the post - war era, swedish economic policy ’ s reorientation toward price stability did not begin until the late 1980s and early 1990s. that was a decade or so after such realignment had been initiated in other countries. by then, sweden had experienced twenty years of inflation that averaged 8 per cent a year. that was the longest inflationary period since the early nineteenth century. in contrast, in the one hundred and forty years from 1830 to 1970, inflation in sweden had averaged an annual rate of 2 per cent. so one can say that in the present decade we have been re - establishing our roots. sweden ’ s policy realignment in the early 1990s was, however, more painful than anyone could have foreseen. one conceivable explanation is that, having waited longer than other countries, the road back to price stability was more difficult for us. there were also a number of exceptional events along the way. what was perhaps the worst bank crisis of the century erupted in the wake of the 1980s ’ bubble economy. exchange rate turmoil was such that, during some dramatic days, the instrumental rate was hiked to 500 per cent. in the early 1990s the budget deficit grew to be the largest in the industrialised world. there are many similarities, as well as some differences, between the