has therefore fallen ‘ behind the curve ’. however, the reaction has been relatively swift and, perhaps more importantly, relatively simultaneous ( figure 5 ). the fact that central banks have acted both relatively early and in unison should mean that there are good prospects for dampening global inflation. risk of central banks going too far? however, there are those who argue that this more or less simultaneous and powerful response from the world ’ s central banks is not necessarily a good thing, but that synchronisation could comprise a problem. 7 the idea is this : each individual central bank tends to focus on inflation in its own country and raise the policy rate to curb it. but inflation in each individual country is also affected by how high inflation is abroad, for example via import prices. the extent to which international inflation is affected by one ’ s own increases in interest rates is not usually taken into account, since the effect is assumed to be negligible. to use an economic term, individual central banks do not internalise the effects of their own actions on international inflation. however, as all central banks raise their rates simultaneously, international inflation is dampened quite significantly. the results of not taking this effect into account could be that all central banks go a little further in their policy rate hikes than they need to. this in turn may lead to the whole world economy becoming weaker than necessary. 8 7 see, for example, obstfeld ( 2022 ). 8 another mechanism that could lead to overall excessive interest rate increases is if central banks try to bring about lower inflation by strengthening their own currency. this requires the interest rate being raised more than in the rest of the world, which may lead to an international race toward higher interest rates. 6 this is an interesting hypothesis worth considering, although it is not easy to see how it could be taken into account in practical policy. formal international coordination of monetary policy is probably not on the cards, and without this it is natural that each individual central bank continues to focus on inflation in its own country. but a positive interpretation is that if this is something central banks nevertheless have at the back of their minds, the risk of excessive interest rate hikes in individual countries is reduced. easier communication when inflation is too high … the conditions are also favourable in terms of communication. as i stated earlier, it was not possible to use monetary policy for macro - stabilisation purposes in sweden in the 1970s and 1980s, because the interest rate was directed at defending the fixed

to float freely, facilitating not only the external adjustment against shocks but also improving the incentives for private agents to properly hedge their foreign currency operations. the deep - rooted credibility of our central bank has also facilitated the conduct of monetary policy with a floating exchange rate system. the fact that the market understands that the central bank pursues a goal for inflation at a 24 - month horizon means that the exchange rate pass - through to inflation is relatively low, indeed the lowest in the region. this can be illustrated with the reluctance of the central bank to tighten monetary policy in 2015 despite a 49 percent devaluation in 2014 - 2016, and without affecting 24 - months - ahead inflation expectations, which remained anchored at the target level. as the 2007 financial crisis unfolded and its effects spread - out, this framework helped us to avoid large costs and evade financial problems despite our strong ties with the global economy. in the aftermath of the crisis the local currency depreciated around 45 percent in seven months, while the monetary policy rate was reduced from a relatively high level of 8. 25 percent in december 2008 to a point five percent in july 2009, remaining there for about a year. together with lowering the interest rate, the central bank implemented a program of liquidity provision that significantly reduced the market interest rates to a level much closer to the monetary policy rate. additionally, in the middle of 2009 it established a term liquidity facility for banking institutions, granting 90 - and 180 - day liquidity at the prevailing monetary policy rate, signaling a more expansionary path for the monetary policy rate than the market expected. the active monetary policy response, together with an expansionary fiscal policy, favored by a healthy fiscal position that was achieved thanks to a fiscal rule where expenditures are determined as a function of long - run copper prices and economic growth, facilitated a rapid adjustment. after only one period of negative annual growth in 2009, the economy was able to sustain growth rates above 4 percent in the years that followed. the inflation rate fell well below the target range for about a year, but inflation expectations remained well anchored at our target of 3 percent in the two - year horizon. undoubtedly this is the strongest countercyclical macroeconomic policy response we have ever implemented to a shock of this magnitude, and it was possible thanks to a sound corporate sector, a well - capitalized and resilient financial sector, and a solid position in terms of international liquidity. importantly for the discussion ahead, this was the result of careful regulation