Már Guðmundsson: Preserving the credit of the sovereign through a financial sector meltdown – the case of Iceland Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at the International Monetary Seminar 2013 “Sovereign risk, bank risk and central banking”, organised by the Bank of France, Paris, 8 July 2013. *  *  *  I would like to thank Banque de France for inviting me to speak at this interesting seminar. This session is on resolving sovereign debt crises and the relative roles of the public and private sectors in that process. My comments will obviously be based on my own country’s experience during the financial crisis, which is a case of a sovereign debt crisis being avoided in spite of the meltdown of a large part of the financial sector and the country’s deepest recession since the interwar period. That result was achieved by relatively good fiscal position prior to the crisis, by a refusal – based on need rather than stubbornness – to rescue private cross-border banks with public money, and by on-going medium-term fiscal consolidation that was an important part of the economic programme developed in cooperation with the IMF. The bottom line is that all sovereign obligations have been honoured; the sovereign has maintained investment-grade credit ratings and market access.
Inflation Expectations of the Players in the Money Market Agents)  In flation Expectation s of th e Players in th e Mon ey Market Agen ts Per cen t 5  5  J an .’95 4  4 3  F eb .’ .’9 96  CP I  No v .’ .’9 97  2  2  F eb .’ .’9 98  1  3  1  F eb .’ .’9 97  0  0  -1  -1 94  95  96  97  98  99  00  01  02  So u r ce cess : St at i s t i cs S wed en an d Pr o s p er a R es ea r ch  BIS Review 14/1998  -9-  Question 7: Is the policy asymmetrical? It takes time before a change in the instrumental rate affects the economy and inflation. Therefore monetary policy always has to be formulated with the aid of forecasts of future inflation. When the Riksbank formulates monetary policy it is done with the aid of a forecast one or two years into the future. A simple rule of thumb should be able to describe monetary policy: if our overall assessment of inflation – assuming that the instrumental rate remains unchanged – indicates that inflation will deviate from the objective for two consecutive years, the instrumental rate must be changed in the corresponding direction.