Monetary Policy in Sweden After the End of Bretton Woods

We discuss how monetary policy in Sweden has evolved since 1973. We provide a chronology of the monetary policy regimes in place during the past fifty years and identify two main regimes, the pegged-but-adjustable exchange rate regime (1973–1992) and the inflation targeting regime (1993–2022). The Riksbank conducted strict inflation targeting in the years after 1993 to build credibility and shifted to flexible inflation targeting from 1999. During and after the global financial crisis, monetary policy dealt with challenges and instruments not originally viewed as part of the inflation targeting framework. We compare economic developments across time and countries. Inflation in Sweden has been more stable under the inflation targeting than previous regimes, while GDP growth was higher during the Bretton Woods System. Developments in Sweden have been similar to those of Denmark. We discuss recurrent themes in the monetary policy debate under inflation targeting. How to define the inflation target? What is the relative importance of demand/supply shocks? What are the implications for monetary policy of financial instability and exchange rate variability? We conclude that the most significant and positive effect of central bank independence in Sweden is the remarkable stability of medium-term inflation expectations.