This task has, for example, been the reason for the crisis measures that the Riksbank has taken since the autumn. However, we need to discuss whether situations can arise in which flexible inflation targeting conflicts with the aim of promoting financial stability. If so, should interest-rate policy be modified or is it more appropriate to use other instruments to, for example, counteract the development of financial bubbles? I have no ready answers to these questions today. They partly relate to the question of the causes of the current financial crisis. Has monetary policy contributed to the crisis through low interest rates or do the causes lie in entirely different factors, such as global imbalances and/or inadequate regulation and supervision of the financial markets? The analysis of the causes of the crisis has begun, but it is still far too soon to draw any clear conclusions about the contribution of different factors. The current economic situation But what are the prospects for the economy in the period ahead and what challenges are we facing now? The financial crisis reinforced the international economic downturn. It is therefore natural to expect that a recovery will only come when the situation on the international financial markets has normalised. Stabilisation of the financial sector The situation on the financial markets has continued to improve during the summer.
Now, however, my induction period has been marked by the extraordinary conditions that currently govern monetary policy: a financial crisis that has still not really come to an end, a very dramatic economic downturn and a repo rate that is close to zero. It has definitely not been a gentle settling-in period! Today, I intend to tell you a little about these early experiences and to explain how I view the monetary policy considerations that are relevant in the current economic situation. I will also say something about my view of monetary policy in the period ahead and to what extent we need to take factors other than inflation into account. Monetary policy in practice The inflation target lies at the centre of the Riksbank's monetary policy. The stated target is that the annual change in the consumer price index (CPI) should be 2 per cent. As far as the target for monetary policy is concerned there is no difference between theory and practice. Both theory and practice show that low and stable inflation creates favourable conditions for the development of the economy in the long term. There is also broad agreement between academics and central banks about the possibilities and limitations of monetary policy. We know that monetary policy can influence both the average level of inflation and how much it varies over time. Monetary policy can not, on the other hand, significantly affect the average level of real quantities such as production, employment and unemployment.