As I said earlier, the rise in the oil price in the past year has, more than previously sharp oil price increases, been due to a pickup in the demand for oil owing to world economic expansion. A rise in the price of oil that is largely a result of high international growth is likely to have less negative consequences for the real economy than a more outright supply shock. In addition to this, of course, the economies in the West - and particularly the Swedish one - are far less dependent on oil than they were during the oil crises in the 1970s. This should mean that the impact of oil price rises on both the real economy and inflation would be considerably more limited than what proved to be the case at that time. The assessment of most analysts today seems also to be that the increase in the oil price in 2004 could indeed curtail somewhat the international economic upswing but that the recovery will not be derailed. The impact of the oil price on inflation, too, should be less than before. Since the oil price shocks in the 1970s there has been a shift in the economic policy regime in many countries which has meant that low, stable inflation has become one of the central targets of economic policy.
Third, technology has advanced enormously in terms of both the capacity as well as sophistication. Countries have benefited immensely from these developments and, as a result, wide choices are available to savers & investors, borrowers & lenders together with greater flexibility & efficiency in the allocation of capital. Many institutions have sprung up in both money and capital markets. Similarly, the financial world has become more complicated with closer interconnectedness within and between individual firms, institutions and markets. In the meantime, the regulatory authorities have begun to focus on the achievement of specific objectives and found that they have to react to action by the financial markets by putting breaks to halt the rapid expansion, which would otherwise threaten the stability objectives. So, they brought in financial regulations to deal with the situations. Unabated by the tightening of financial regulation, financial markets continued to grow rapidly and ended up in crises and the world has learnt many lessons from financial crises. The outcome of the Mexican crisis in 1994, the Russian crisis from 1992 to 1995 and the Asian crisis from 1997 to 1998 was the further tightening of financial regulations and introduction of new ones. They were more reactionary and intrusive after the Enron and World Com failures in the USA. The Sarbanes Oxley regulations, which are considered somewhat draconian have come to stay, but may be with modifications.