However, later research has shown that in the longer term there is no connection between inflation and unemployment. At the same time, I believe that the problems in the 1970s and 1980s could partly be explained by the Swedish economy being unable to manage the low unemployment we had then without excessive price and wage increases ensuing. For me, one of the most important tasks of economic policy over the coming years is to bring down unemployment. However, the Riksbank is unable to do very much about this. The Riksbank’s contribution is to safeguard the inflation target and in this way create favourable conditions for growth and employment. All in all, my picture is still that the Swedish economy has functioned much better over the past ten years than in the 1970s and 1980s. Things are better now. Current monetary policy The other part of my presentation is concerned with economic developments and current monetary policy and the reasons why the Executive Board of the Riksbank decided at its most recent monetary policy meeting on 22 February 2006 to raise the repo rate by 0.25 percentage points to 2 per cent. The Riksbank’s view of economic developments over the coming years is presented in the Inflation Report, which was published at the same time as the interest rate decision. This part of my presentation does not contain any new information or new assessments in relation to the February Inflation Report and the separate minutes of the Executive Board meeting.
We can test how the system is likely to behave under stress. But we have until recently been in a very muted phase of the credit cycle. We are now, I hope, entering a more normal phase of the cycle, and approaching the point at which, from a macroprudential stand point, the Financial Policy Committee (FPC) will have to spend less of its time on the design of the regulatory framework and a lot more of its time on whether and when it needs to address the build-up of cyclical risk in the financial system. And, as we learn how the financial system behaves in first the more normal and then the more challenging parts of the credit cycle, we will also learn more about how the new regulatory framework functions as a whole. There will, as I and others have said, be areas where we find the reforms do not work as intended and that it is necessary to adjust them. It would be surprising if this were not the case. In response to the biggest global financial crisis since the 1930s the international regulatory community has agreed and is carrying through the biggest, most complex and most comprehensive programme ever of interlocking regulatory reform. There will be elements that need to be adjusted – indeed this process has already started with the reforms to securitisation now underway in the EU motivated in no small part by the joint work of the Bank of England and the European Central Bank.