While there are signs of effects on demand that might be explained in the same way as in the US economy, the supply-side effects via higher productivity growth are not yet as clear or as universal. It is conceivable that such effects on supply will materialise and the Riksbank must be alert to that possibility. But we cannot count on such hopes in advance, particularly as they have not yet left any mark on leading indicators, for instance in the form of rapidly rising investment. What is the level of unutilised resources? Another aspect of the speed limit to economic growth, at least in the short run, is the level of unutilised resources. An important component here is the extent of unutilised labour. Experience shows that the stability of inflation has to do with the level of unemployment. If unemployment falls below a certain level, a stronger stimulation of production and employment (by means of a more expansionary economic policy, for example) simply leads to bottlenecks, shortages and rising inflation. Instead of a permanently higher level of employment, the end result is a return to higher unemployment. This level of unemployment is not something that monetary policy can alter. It has to do with other factors, such as occupational and geographical mobility, the propensity to take the jobs that are available, and so on. Contributions in this field can be made with other components of economic policy but not, as I said, with monetary policy.
On other occasions there may be an obstacle in the form of a disruption, such as the Asian crisis the other year. In both cases, monetary policy must be adjusted to the economic laws but also to the conditions that apply for the current phase of the journey. What I mean is that interest rate hikes and cuts are a natural ingredient of a monetary policy for price stability - a policy that ultimately aims for a stable development of production and employment. The favourable economic trend in Sweden in recent years is in fact a good illustration of price stability’s affinity with a stable expansion of output and jobs. Since the upturn after the crisis in the early-1990s, the annual GDP growth rate has averaged around 3%, the number in employment has risen by almost 150,000 persons and the rate of inflation has been more or less around the target. This has called for repo rate increases on some occasions and cuts on others. 1  BIS Review 6/2000  Rapid GDP growth during 1999 So at what speed is the Swedish economy currently travelling? What are the speed limits? And what repo rate is appropriate for a safe journey? According to the latest national accounts, published just before Christmas, the GDP growth rate for the first three quarters of 1999 was over 3.5%. It is still difficult to tell just what happened in the fourth quarter but demand growth seems, if anything, to have accelerated.