However, the fact that Sweden was relatively well equipped to confront the crisis, in combination with other factors, contributed to a rapid recovery of the Swedish economy. During 2010, GDP increased by more than 5 per cent. Thus the increase was as large as the decrease had been the year before. And some of the reasons behind the pronounced decline also explain the rapid recovery. I will cover this in the first part of the speech. But Sweden was also lucky that the crisis did not have more severe consequences. As in many other countries, the crisis exposed vulnerabilities in the regulatory and supervisory framework for financial stability. The key conclusions we draw are not unique for Sweden and I will spend the rest of the speech outlining these issues and what we are doing to deal with them. Why were both the recession and the recovery more pronounced in Sweden than in the rest of the world? Sweden is indeed a small, open economy! Our exports and imports are approximately 50 and 40 per cent of GDP respectively. This is the main reason why the Swedish economy was hit so badly during the recent international recession, as global trade collapsed. While exports in the euro area and the United States fell by approximately the same amount as in Sweden, our higher export share meant a larger impact on the economy.
How should we structure the decision-making process in order to take account of the nexus between monetary policy and financial stability? It seems clear that the central bank should have some role in setting macro-prudential policy but that precise role may differ depending on the regulatory structure preferred by different countries. For example, responsibility for macro-prudential policy could be given to a committee in which a representative from the central bank would sit (like in the United States) or it could be given to the central bank (like in the UK). And central banks can adopt different internal governance approaches: some have a separate board for monetary policy; others also have a separate board for financial stability. Most central banks have the same board for both, but may have separate Deputy Governors responsible for each of the two strands. What matters, as I see it, is that “the buck stops somewhere”. There must be a decision at some high managerial level which balances the interests of monetary policy and financial stability as well as other central bank responsibilities. The organisation and processes of the central bank must also be structured so that there are analytical tools and resources available to help policy makers take a balanced view in their decisions concerning both monetary and financial stability policy objectives. For instance, there should be interdepartmental working groups. It is also important to remember that systemic risks can quickly spread between countries and reducing the build-up or impact of such risks will require coordinated international actions.