Svein Gjedrem: The macroprudential approach to financial stability Keynote address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the conference entitled “Monetary Policy and Financial Stability”, hosted by the Oesterreichische Nationalbank (Austrian National Bank), Vienna, 12 May 2005. Please note that the text below may differ slightly from the actual presentation. The  Charts in pdf-format can be found on the Norges Bank’s website. *  *  *  Introduction First of all I would like to thank the organisers for inviting me to this conference. It’s a great pleasure to be given the opportunity to share with you some views on financial stability issues. Financial stability has become an increasingly important objective in economic policymaking during recent decades. In the 1980s, direct regulation of credit markets and capital flows was dismantled in many countries. This has prepared the ground for an expansion of the financial system at a faster pace than other parts of the economy. In this process, the financial system has gone through important structural changes and become more complex. The instruments have become more intricate, the activities more diversified and the risks more mobile. As a result of increasing cross-industry and cross-border integration, financial systems have also become more interwoven, both nationally and internationally. In parallel with the strong growth of the financial system, we have seen more frequent instances of widespread financial distress. The resulting macroeconomic costs have often been sizeable.
Another problem is that the difference between rates on different euro countries government bonds has increased, at the same time as one can envisage substantially increasing deficits in public funds and thus an increased supply of government bonds. Concluding remarks My main messages today have thus been that so far Sweden has been able to handle the problems that the global financial crisis has caused the Swedish financial system. However, the negative consequences for the Swedish economy will be considerable over the next two years. And the global financial system needs to be reformed to reduce the likelihood of new financial crises. The new information received since the most recent monetary policy meeting at the beginning of December indicates lower growth and inflation at the end of last year than we had forecast. However, the krona has weakened further, which can lead to some inflationary impulses. But more information will have come in by the time we are to make our next monetary policy decision in early February. Not until then will I take a stance once again on the future direction for monetary policy.