In the most recently published inflation assessments, it was assumed that the price stability target was not threatened during the forecast period despite the growth of demand being so strong that use of capacity was under strain at the end of the period. The majority view of the Executive Board was therefore that there was no reason to increase the repo rate. This assessment was based on free resources in the initial situation, good productivity growth, low price increases on certain recently deregulated areas, low import prices and finally low inflation expectations. It is not per se strange that GDP can increase as much as 3-4% for a couple of years without inflation sharply accelerating, if the use of resources is low initially. If the pattern from previous cyclical upswings was to be repeated, price pressure should now increase. However, it has proven difficult to identify any exact and very stable correlation. As I mentioned earlier great changes have taken place in the Swedish economy. While there are still considerable deficiencies in competition in many areas, it is nevertheless not probable that inflation will accelerate strongly in the next few years. An important reason for this is that the price stability target has now  BIS Review 48/2000  4  obtained such strong support that inflation expectations are not increasing despite a cyclical upswing that is stronger than for a very long time.
Indeed, some sort of an intellectual vogue is flourishing, which contends that, in light of past experiences, any banking crisis is bound to have severe adverse economic consequences. You have those, the optimists, who predict a Swedishtype of crisis. And you have those, the pessimists, who allude to Japan's "lost decade". If referring to the past is of any use, it is precisely to learn from past errors. As a result, any comparison is bound to be misleading. Not only is today’s economic situation critically different. It is also addressed very differently. Let me insist on one key difference, which has to do with policy reactions to the crisis. They have been extraordinarily rapid, massive and vigorous. We have learnt from past crises, especially from the long adjustment Japan has been through after the burst of the asset price bubble in the late 80s. Let me also mention that macroeconomic policy instruments are available and could be used should output decline dramatically. The outlook for financial regulation A major consequence of the crisis already apparent is the growing consensus around the need for a fundamental review of the foundations of financial regulation. The crisis has also rekindled concerns about the structure of supervision. As you know, at the French President’s instigation, huge efforts are made to think about what is termed now a “new Bretton Woods”. Beyond these ambitious words, I do believe it to be useful to take a fresh look at the existing financial regulation.