Therefore, as you celebrate this great milestone, we join you in anticipating further progress and effectiveness in the execution of your mandate. Mr. Chairman, the central theme of my address today is the important role that information plays in economics in general and in financial markets in particular. In 1970, some 39 years ago, or 4 years before the establishment of the Central Bank of Swaziland, an economist called George Akerlof published a paper called “The Market for Lemons.” By lemons he was referring to used cars in the United States of America. Akerlof, who would later win the Nobel Prize in Economics for his work, demonstrated how information asymmetries between two contracting parties, a used car seller and a used car buyer, could lead to an inability of the car dealer to sell cars. More broadly, the moral of his story was that information asymmetries that allowed for no credible assessment of value of a given transaction, could lead to market collapse – in this instance the market for used cars. Mr. Chairman, if we fast forward to the year 2008, and to the current financial crisis, we note that asymmetries in information between financial institutions, this time relating to the extent of exposure to and value of complex derivative products, led to a freezing up of credit markets, the eventual collapse of some important financial institutions, and the near meltdown of the entire financial system. In these events we can see the insights of Akerlof in his 1970 paper.
Developments beyond the forecast horizon The uncertainty in the forecasts increases the further ahead they look, but despite this it can be interesting to look beyond the two-year forecast horizon in the main scenario. Economic developments during the past decade have been characterised by considerable free resources following the crisis at the end of the 1990s. That is not the case today, and will be even less the case in two years’ time, if the economic upturn continues as expected. This changes the focus of economic policy. A decisive factor for economic growth will be the development of production capacity, as I have mentioned earlier. It is production capacity that governs the development in demand that is compatible with price stability. Here there are some worrying tendencies, which I have touched upon earlier. The labour supply in Sweden risks developing less favourably beyond the forecast horizon as a result of demographical changes. Shorter working hours would have the same effect. On the other hand, measures may be taken to increase the supply of labour and thereby affect developments in the opposite direction. This effect could be obtained by, for instance, lower absence due to sickness. It is clear that the way the labour market functions will play a decisive role for economic growth both in the coming two years and beyond the forecast horizon. An important issue for Sweden in the near future is whether we shall take part in the third stage of EMU.