16 We must continue to safeguard the inflation target, and learn the major lesson from developments in the 1970s and 1980s, namely to ensure to retain the credibility of the nominal anchor. And we must also learn the major lesson from the financial crisis, namely that financial stability is a condition for low and stable inflation and good economic developments in general. The global dimensions of the financial and debt crises affect the conditions for Swedish monetary policy As I mentioned earlier, the Swedish economy, despite good conditions, has been greatly affected by the financial and debt crises. One question that has arisen once again is how much monetary policy in a small, open economy like Sweden’s can deviate from that conducted in other countries. 17 The correlations between Swedish and international (KIX-weighted) GDP growth and inflation since the 1980s are both above 0.8, which indicates that a very large part of the variation in economic activity in Sweden stems from  14  See, for instance, Aiyar, S. Calomiris, C. W. and Wieladek, T. “Does Macro-Pru Leak? Evidence from a UK Policy Experiment”, NBER Working Paper no. 17822, 2012. 15  In my speech here last year I gave a detailed description of my thoughts on monetary policy and macroprudential policy. 16  See also Billi, R. and Vredin, A., “Monetary policy and financial stability – a simple story”, Economic Review 2014:2, for a description of monetary policy and financial stability that reflects this opinion.
1990s crisis: “Things abroad were quite OK, but Sweden was not OK” I hope that it is clear from what I have described so far that the 1990s crisis was in many ways domestically generated. Inflation was far too high in relation to other countries, and the deregulation of the credit market and the too expansionary economic policy created an overheating that ended in disaster: the banking crisis, a currency crisis and also a public finances crisis. In somewhat simplified terms, I usually describe the crisis of the 1990s like this: “things were quite OK abroad, but Sweden was not OK”. There were thus many lessons to be learned with regard to domestic economic policy and not least monetary policy. Important lesson – increased elements of “norm-based thinking” give credibility to the nominal anchor Perhaps the most important individual lesson learnt from the 1990s crisis was the importance of “norm-based thinking” and long-term game rules for economic policy. 5 This came to mark the thinking behind the new monetary policy regime. 4  See Englund, P., “The Swedish Banking Crisis: Roots and Consequences”, Oxford Review of Economic Policy, no. 3, 1999. 5  This way of thinking had been brought up earlier in the debate in Sweden, particularly by the Swedish Centre for Business and Policy Studies’ Economic Policy Group, but did not have a broad impact on practical economic policy until the 1990s.