The Riksbank is also studying various measures for changes in the quantity of money as well as bank lending. These quantities also have varying degrees of co-variation with inflation, but with a rather long time-lag. Altogether, it can be said that capacity utilisation, inflation expectations, and the exchange rate are the most important determining factors underlying inflation forecasts. What has been said summarises the main content of the stabilisation policy regime that was established after 1992. On 1 January 1999, the Riksbank was made formally autonomous of political influence and has since then been governed by an executive board of six members. BIS Review 59/1999  6  3. Shall policy control the quantity of money or inflation directly? Some central banks, previously the German Bundesbank and now the European Central Bank, ECB, have an (unclear) quantity of money target for their policy. These banks endeavour to meet the inflation target by trying to control the expansion of the quantity of money. In fact, there are considerable similarities between the methods of aiming at the quantity of money and at inflation. The banks’ means is the repo rate that can be set to affect the quantity of money or inflation. However, as in the case of inflation, the quantity of money cannot either be directly controlled by the repo rate.
It is evident that no wage formation system can operate under such conditions. The labour market researcher (Bertil Holmlund in Uppsala) argued at that time that NAIRU – the unemployment consistent with constant inflation was between 2.5 and 3 per cent, which today appears to be very low. The stabilisation policy problems accumulated towards the end of the 1980s. The Government encountered a crisis situation in 1990 and introduced a prohibition on strikes, a number of freezes such as a wages freeze, a rent freeze, a freeze of local government tax increases among others. The Government announced that Sweden was to apply for membership of the EU. On 15 February, the Government lost a vote in the Riksdag on the prohibition against strikes. Kjell-Olof Feldt resigned (the Minister of Finance). BIS Review 59/1999  2  It can probably be said that the events of autumn 1990 were the last of the old stabilisation policy interventionist kind. The “corporative” co-operation policy had failed. The fact that the end of the road was reached in February 1990 was actually a result of the Government’s own actions in the latter half of the 1980s and its inability to restrict demand. The credit market had been successively deregulated during the 1980s. Foreign exchange regulation began to be dismantled in 1986 and was completely abolished in summer 1989. Foreign exchange policy formally changed course when the krona was linked to the ECU at Whitsun 1991.