Inflation has been higher in Sweden than in Germany for long periods of time. During the 1960s we more or less kept pace with Germany. However, during the second half of the 1970s and in the 1980s, inflation in Sweden was several percentage points higher than that in Germany each year. Since the beginning of the 1990s, inflation in Sweden has once again been roughly the same as that in Germany. Sweden has become a low inflation economy. What, on the whole, has happened since the 1960s? To illustrate this, I shall talk about some of the episodes of the past 30 years that have had great significance for economic developments and for my own view of the Swedish economy. I have been able to follow the economic policy decision-making process connected with these episodes at close quarters from my various posts in public administration. I would like to emphasise that this is my personal view of developments and not the Riksbank’s official view. The episode I will talk about include the cost crisis in the 1970s and overheating in the 1980s, the change in exchange rate and monetary policy, the wage formation reform and budget consolidation of the 1990s. The cost crisis of the 1970s During the 1960s, economic growth in Sweden wad good. GDP growth was at a high level, inflation was moderate, unemployment was low, foreign trade was largely in balance and public finances were strong.
The five key variables are: • • • •  inflation, measured as the CPIF, the target variable for monetary policy wage increases, according to short-term wage statistics from the National Institute of Economic Research (NIER) unemployment, according to the Labour Force Surveys (LFS) job openings, according to statistics from the Swedish Public Employment Service (Arbetsförmedlingen) on remaining job openings  I would especially like to thank Mikael Apel and Emelie Theobald for their help with this speech. Meredith Beechey, Charlotta Edler, Jesper Hansson, Ann-Leena Mikiver, Åsa Olli Segendorf, Cecilia Roos-Isaksson and Ulf Söderström have all submitted valuable comments. ∗  1 [16]  •  the krona exchange rate, according to the trade-weighted KIX index. In order to focus on the trends in these five variables, I remove seasonal variations and general noise in the series by using moving averages over twelve months throughout. We will follow the time series for these variables two at a time. By doing so, we can see the covariation between inflation and unemployment, for example. Looking at data is a good place to start It is important to understand that covariation between two variables does not necessarily mean that there is a causal relationship, a causality, between them. Instead, the covariation may, for example, depend on a third variable that is not shown. A classic example is the strong correlation between sleeping with your shoes on and waking up with a headache. But this presumably does not imply that the shoes cause the headache.