Our monetary policy is oriented at controlling inflation. The exchange rate floats to absorb international shocks without causing major disruptions in domestic activity. The fiscal policy is based on a rule that implies saving transitory incomes and today enjoys the benefits of prudence. Fiscal savings, combined with the Central Bank’s international liquidity position, provide a reserve of resources that permits us to accommodate external financing shocks even worse than those we are seeing now. Our financial system has been prudent and has the necessary levels of capitalization to play its credit intermediating role properly. Prudence, both of the private sector and of the macroeconomic policies, can now yield their fruits in the worst financial episode the world has had to suffer in many decades. Thank you. References Berger, H. and E. Stavrev (2008). “The Information Content of Money in Forecasting Euro Area Inflation”. IMF Working Paper WP/08/166. Bernanke, B. and M. Gertler (2001). “Should Central Banks Respond to Movements in Asset Prices?” The American Economic Review, Papers and Proceedings of the Hundred Thirteenth Annual Meeting of the American Economic Association, 91(2): 253-257. Blinder, A. and R. Reis (2005). “Understanding the Greenspan Standard.” In The Greenspan Era: Lessons for the Future, Proceedings of the Jackson Hole Symposium 2005, Federal Reserve Bank of Kansas City, pp. 11-96. Borio, C. (2008). “The Financial Turmoil of 2007-?”: A Preliminary Assessment and Some Policy Considerations.” BIS Working Paper No. 251. Christiano, L., R. Motto, and M. Rostagno (2007). “Two Reasons Why Money and Credit May Be Useful in Monetary Policy”.
The purpose of such a monetary adjustment is not to break the expansionary trend but to achieve growth that is more sustainable. In BIS Review 101/1997  -3-  other words, a shift from an expansionary stance to one that is more neutral is designed to bring the economy onto the growth path that matches its structure -- not to bring growth to a halt. Neither should this be described as a contractive turn; it is rather a move that yields a less expansionary stance. In the public debate the Riksbank’s monetary policy is sometimes described as though repo rate adjustments were a form of “punishment” or “reward”, aimed at measures that have been taken either by the political system or by labour market organisations in connection with wage negotiations. My point here has been that interest rate adjustments are a natural feature of monetary policy’s path over the economic cycle. Of course this does not mean that the construction of monetary policy is not affected by fiscal expansion or contraction, or by low or high wage settlements. What I want to make clear is that adjustments to the instrumental rate in the course of the economic cycle are a natural phenomenon and their purpose is to create conditions for sustained growth and low inflation. If a central bank waits too long before shifting from an expansive to a more neutral monetary stance, problems with bottlenecks are liable to become more widespread and the economy may become overheated.