In Sweden, however, inflation has significantly undershot the target of 2 per over the last 15 years. In other countries that have had a fixed inflation target for the same length of time as Sweden, the average inflation rate has instead been on target. At the same time, inflation expectations in Sweden have been anchored to the target. According to established economic analysis, anchored inflation expectations lead to a negative relationship between average inflation and average unemployment. Then the long-run Phillips curve is no longer vertical, but down-ward sloping, which is confirmed by data. That the average inflation rate has undershot the target in Sweden has thus probably led to substantial costs to the real economy in the form of higher average unemployment. This makes it important to ensure that average inflation is henceforth on target for an extended period of time. The too high average unemployment rate also means that the long-run sustainable rate of unemployment may have been overestimated. The Riksbank’s mandate for monetary policy Price stability and the highest sustainable rate of employment My view is thus that the Riksbank’s mandate for monetary policy means that monetary policy should stabilise inflation around the inflation target and unemployment around a long-run sustainable rate. I consider that this follows from the Sveriges Riksbank Act and the government bill containing the proposal for the current Act. The Sveriges Riksbank Act states that the objective of the Riksbank’s monetary policy shall be to maintain price stability.
The World Economic Forum Banking Strength index shows that the Chilean banking sector is very strong, as it ranks in the 11th place in the world. Let me finish by pointing out the relevance that the exchange rate derivatives market has had in favoring both financial stability and the conduct of the flexible inflation targeting scheme in Chile. This market is not as deep as it is in developed countries, but it has experienced significant growth of more than 10-fold since 1998, fueled in part, as I already mentioned, by the floating exchange rate regime. The role of pension funds has been significant as well, as they maintain a large positive foreign financial position, and keep hedging against exchange rate risk even above the regulatory requirements, especially in the aftermath of the last crisis. Thanks to these factors and a favorable regulation, Chile shows a high level of penetration of financial derivatives compared to other emerging economies and countries in the region. All this has contributed to a limited exchange rate mismatch of corporations. Today the share of firms with a mismatch over 10 percent of their assets is below 10 percent, down from around 20 percent before the Crisis. Hence monetary policy can be conducted in a countercyclical manner, without the need to manage the exchange rate. However, as the recent experience in developed countries has revealed, the rapid development of derivatives 5  markets also poses challenges to regulators due to their complexity and potential concentration of risks in a few entities.