Mugur Isărescu: Overcoming economic problems, the experiences of Sweden and Turkey – an inspiration for Romania? Opening speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the conference “Overcoming economic problems, the experiences of Sweden and Turkey – an inspiration for Romania?”, Bucharest, 23 September 2013. *  *  *  Ladies and Gentlemen, Your Excellences, Distinguished Guests It is a pleasure for me to welcome you to the National Bank of Romania. I salute the presence of such a distinguished audience: Their Excellences, the Ambassadors of Sweden, Turkey, Brazil, Cyprus, Germany, the Netherlands, members of the diplomatic corps, economists, bankers, businessmen, journalists. We are honored to host this international conference: “Overcoming economic problems, the experiences of Sweden and Turkey: are these an inspiration for Romania?” The title is, I believe, self-explanatory. In today’s globalized world, learning from other countries’ experience is of utmost importance. And while it might be true that no one really learns but from his own mistakes, one can hope that some other mistakes may be avoided when learning from other people’s experiences. Why Sweden and Turkey? Before answering this question I wish to emphasize that the National Bank of Romania is open and willing to host other conferences with similar topics. And today’s conference might be considered the first of a series, involving clusters of countries with relevant interactions.
But there’s something wrong. Interest rates are on the wrong side of the argument! They are too low, not too high, even if we assume that the equilibrium real interest rate is zero. Chart 5  Chart 6  Neither does international comparison suggest that Iceland is off the charts. Chart 5 shows a comparison of the real policy rates in a number of countries, based on the most recent interest rate decisions and the most recent twelve-month inflation figures. Iceland is 4  BIS central bankers’ speeches  somewhere in the middle. In Chart 6 we see several industrialised countries. Iceland is at about the same level as Sweden. Interest rates are higher in countries that are further along in the business cycle and have less slack, and they are lower in countries where the slack is greater, monetary policy is more credible, and long-term inflation expectations are near target in spite of higher current inflation. Chart 7  Chart 8  Finally, I show charts that illustrate, on the one hand, nominal GDP growth as forecasted for 2011 and, on the other, the current nominal policy rate. Some have posited that monetary policy should aim at keeping nominal GDP growth as stable as possible at a level that, in equilibrium, would deliver a desirable inflation target. I have certain doubts about how this would work in practice, but that is beyond the scope of my speech today.