The answers to this question as provided in the Inflation Reports published in 2006 were as follows: •  JANUARY 2006: “... a short-term interest rate path remaining constant for the first couple of months in 2006 and displaying a gradual decline thereafter...”  •  APRIL 2006: “...where the Central Bank continues to cut policy rates gradually...”  •  JULY 2006: “... in addition to the measures of June, the Central Bank will implement measured monetary tightening in the rest of 2006 and cut policy rates gradually in 2007...”  •  OCTOBER 2006: “under the scenario that the Central Bank maintains its tight stance until the last quarter of 2007 and cuts policy interest rates afterwards...”  As it is clearly seen above, as long as there was not a significant shock in the economy, the Central Bank acted in parallel to its earlier statements. However it had to revise its monetary policy stance after important shocks such as the market volatilities of May and June. It is more evident in light of these this example that, as it is frequently emphasized in our announcements, the interest rate path, which is used by the Central Bank in producing forecasts, should not be perceived as a commitment to be followed in every case. Hence, the interest rate risk should be assessed by considering the fact that the outlook presented in the Inflation Report is subject to change depending on the data flow, and thus, the policy perspective can be updated whenever necessary.
Price and wage developments repeatedly came on a collision course with the fixed exchange rate and Sweden suffered cost crises. To rectify the situation,  BIS Review8/2007  1  the krona was devalued a total of five times during a period of seven years. But the trend increase in domestic prices and wages continued to rise. The fundamental problem still remained. The result was modest economic growth, poor productivity growth and more or less stagnant growth in real wages. The performance was markedly weak both compared with earlier periods and in relation to other countries. During the crisis years at the beginning of the 1990s the situation got even worse. Unemployment increased fourfold in the course of a few years and the central government finances deteriorated dramatically. Long-term interest rates rose and the interest rate differential towards, for example, Germany occasionally came to several percentage points. The fixed exchange rate lost its credibility and finally had to be abandoned, following large currency outflows and extreme interest rate hikes in attempts to defend the krona. The nominal anchor that was to hold down inflation and inflation expectations in the economy had loosened. To secure it again and bring the Swedish economy onto a better track required drastic measures. The solution was what one might call a stabilization policy change of regime. The tasks of both monetary policy and fiscal policy were fundamentally redefined and we were given a clear allocation of roles in economic policy.