From 1995 onwards the average rate of inflation, measured with UND1X, has been fairly close to the 2 per cent target. This has been accompanied by higher GDP growth than before. A part of the higher growth is of course explained by there being plenty of unutilised resources after the crisis in the early 1990s. BIS Review 24/2002  5  Variations in inflation and GDP growth Thirteen industrialized countries  1995-00  6  6  5  5 St. dev. inflation  St. dev. inflation  1970-90  4 USA 3  Sweden  2 Germany  4 3 2  1  1  0  0 0  1  2  3  St. dev. GDP growth  4  Sweden  USA  Germany 0  1  2  3  4  St. dev.GDP growth Source: The Riksbank  It cannot be argued that inflation targeting countries would have done worse if they had followed the same strategy as Germany and Switzerland, or that those two countries would have done equally well if they had targeted inflation. It is also conceivable that similar results would have been achieved with other monetary strategies, such as the pragmatic procedure at the U.S. Federal Reserve or the fixed exchange rate regimes – amounting in practice to a delegation of monetary policy to the Deutsche Bundesbank – that were used at times in, for example, France, Italy and Denmark.
Debt markets are profoundly disrupted and international movements of capital have been highly volatile over the last two years. Fifth remark. The intervention capacities of central banks are of course limited. They can remedy temporary market disruptions and situations of illiquidity caused by uncertainty. Recently they have intervened to an unprecedented extent, as reflected in their balance sheets. But they cannot permanently substitute financial markets and banks when financial intermediation malfunctions. Likewise, low or zero interest rates can contribute to stabilising  BIS central bankers’ speeches  1  the economy in periods of crisis, but if maintained over a protracted period, they can create distortions, encourage the formation of bubbles and create risk for long-term investors. Indeed, on this topic, I would like to make one observation. The question of monetary financing of deficits was raised by David Thesmar. Such financing cannot in any way resolve the problem of the dislocation between savings and investment, either at the national level or at the global level. Some central banks have developed large-scale public debt acquisition programmes. They have done so for reasons relating to immediate macroeconomic stabilisation... to go beyond the zero-interest rate limit. The Eurosystem as well intervened on a much smaller scale when malfunctioning debt markets prevented the effective transmission of monetary policy impulses. There is not a single central bank that is seriously considering the monetisation of deficits with the more or less declared intention of reducing the weight of debt via inflation.