Kristina Persson: Monetary policy yesterday, today and tomorrow Speech by Ms Kristina Persson, Deputy Governor of the Sveriges Riksbank, Aktiespararna Lindingö, Stockholm, 9 November 2005. The diagrams for this speech can be found on the Sveriges Riksbank website www.riksbank.com. *  *  *  Thank you for the invitation to come to Aktiespararna Lidingö this evening to talk about monetary policy, which is for me a job and – I assume – for you an interest, as you save in shares. It is of course important for those investing in companies to obtain a good (risk-adjusted) return on their investment. Monetary policy that contributes to low and stable inflation leads to less uncertainty, clearer game rules and better conditions for growth. I intend to begin with a look back over monetary policy during the past decade and a description of the sequence of events when we changed over to inflation targeting after the economic crisis in the early 1990s. After that I shall briefly discuss the current economic situation, mention the changed conditions I envisage and what they may entail for monetary policy in the future. From economic crisis to 10 years of inflation targeting Many of you will remember and will have been affected in some way by the economic crisis at the beginning of the 1990s. That was when the foundations of the current monetary policy were laid; when the fixed exchange rate was abandoned as a monetary policy objective and replaced by an explicit inflation target.
There are many indications that an increasing number of companies are now approaching the limit where they can no longer meet the increase in demand without recruiting new staff. We are thus beginning to see signs of a turnaround, but the question of the labour market and the significance of monetary policy for employment remains important. To what extent can the problems in the labour market be said to be due to the Riksbank having conducted an excessively tight monetary policy? If we had succeeded in predicting the high productivity we would probably have conducted a slightly more expansionary policy, but my answer is nevertheless that one is overestimating the power of monetary policy if one believes that it could have solved the problems in the labour market. A large part of unemployment is due to structural reasons and therefore does not vary according to the economic cycle. I do not believe that it would have led to so much higher consumption and investment if the repo rate had, for instance, been on average half a percentage point lower during 2002 and 2003. My assessment is thus that it would probably have led only to marginally lower unemployment. If one wishes to achieve a lasting improvement in employment, measures are required that will stimulate the functioning of the labour market in different ways and lead to investment and a good corporate climate.