Continued weak growth in the labour supply will mean in concrete terms that the Swedish economy will reach its capacity ceiling at an earlier stage and that the Riksbank may be forced to raise the repo rate at a lower growth rate than would otherwise have been the case. Another dimension of the problem is that the ageing population gives rise to greater expenditure on medical treatment, care of the elderly and pensions, which burden government budgets. At the risk of sounding repetitive, as this is something pointed out by many in the debate, I would nevertheless like to emphasise that the only realistic means of alleviating these effects is for more people to work and pay taxes and for fewer to be dependent on the social welfare system. This area will offer one of the largest challenges to economic policy in the future. Another factor that has proved surprisingly negative is the development of the krona. If someone had said to me ten years ago – when I first came to the Riksbank – that we would have as good macroeconomic growth as we have had, I would never have imagined that the krona would develop as weakly as it has done. The question is why this has happened? Traditional explanations based on competitiveness, relative inflation rates or growth rates are not sufficient. The Riksbank has therefore begun a large-scale study with the aid of external academics to try to understand this development.
Lars Heikensten: Introduction on monetary policy Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, at the Riksdag Committee on Finance, Stockholm, 20 October 2005. *  *  *  Let me begin by thanking you for your invitation to the Committee on Finance. We have now been working with inflation targeting for just over ten years in Sweden. We have had open hearings in their current form since 1994. The hearings are one of the cornerstones of the Riksbank’s strategy regarding openness and are an important instrument with which to win democratic legitimacy for monetary policy. Today is the last time I will have the opportunity to appear before the Committee in my capacity as Riksbank Governor. Against that background I thought I would begin with a look back at the last ten years. What have we achieved during these years? What has gone well and less well? I also intend to discuss a couple of issues concerning the formulation of the inflation targeting policy; what expectations are reasonable to have? How is policy being conducted and how can it be developed? These are relevant questions, not least given the discussion that we have seen recently. Finally, I intend to speak about the outlook for the economy and inflation that is presented in the Inflation Report and my own view on future monetary policy. Developments in the past ten years As I’m sure you all remember, our country was hit hard by a deep economic crisis at the start of the 1990s.