But this does not mean that the international economy has been inoculated against new, unexpected shocks. Remember that noone predicted the extent and course of the Asian crisis. Neither were the risks that led to last autumn’s international financial turbulence highlighted in advance. Our knowledge of phenomena of this kind is limited. It may be asked whether it will ever be possible to predict such matters accurately. The models with leading indicators that are being tested at present  1  BIS Review 106/1999  tend to be too blunt. They are liable to sound the alarm about things that never occur and miss those that do happen. The picture is bright at present but we know that some countries are in a vulnerable position that can suddenly deteriorate. Stock market prices are notably high, not least in the United States. The existing imbalances in the US economy may have effects in the future. But as the course of such events is genuinely difficult to foresee, central banks have little option but to deal with a new situation if and when it arises. Repo rate too low in a longer perspective After the series of reductions, the repo rate is currently 2.90%. Over a complete business cycle, such a level would probably be too low, even in an economy where inflation expectations have settled down around the targeted rate of 2%. So the present monetary stance can be said to be relatively expansionary.
One reason for greater circumspection today in monetary policy is that the trade-off between growth and inflation may have changed. During the 1990s the paths of inflation and real economic activity in many countries, Sweden included, have not followed the pattern that their earlier relationship suggests. This has started a discussion, in the United States and elsewhere, of whether macroeconomic structures have changed so that higher growth is now feasible without inflationary tendencies. It is BIS Review 106/1999  2  sometimes argued, for example, that one of the forces behind today’s improved economic performance in the United States is the rapid advances in computer technology and telecommunications; this has led to more efficient processes for production and distribution and thereby paved the way for higher productivity growth. Productivity in the United States does appear to have been rising more strongly. Some observers consider that the potential annual growth rate may have moved up from 2% to up to 3%, perhaps even more. In Sweden, too, there are many indications that the growth of labour productivity in the 1990s has been higher than in the 1980s. The upward shift may perhaps amount to half of a percentage point. It is this that has prompted the common, but not entirely certain, estimate that the Swedish economy can now sustain an annual growth rate between 2 and 2.5%. But Swedish statistics do not yet confirm that productivity and thereby potential growth have increased fairly appreciably, as has been the case in the United States.