In the United States, however, the upward shift in productivity growth has led to a development along the lines I discussed earlier, with growing expectations of future profits and incomes, steeply rising share prices, extensive new issues and credit growth. Massive investment in the corporate sector has been accompanied by rapidly rising purchases of durable goods. The private sector’s financial balance has deteriorate rapidly and become increasingly negative. That in turn has enlarged the deficit on current account. In Sweden, the Stockholm Exchange has been driven by the stock-market boom in the United States, not least in the IT and telecom sectors, but credit growth has been more moderate. Neither has investment risen as rapidly as in the United States. The private sector financial balance has not undergone such a marked negative swing and for several years the current account has shown relatively large surpluses. So in crucial respects the course of events in Sweden in the second half of the 1990s differs from that in the United States. Against this background, in this period the Riksbank has not found any grounds for sizeable departures from the rule of action. 5. Conclusions  So what conclusions can be drawn about how monetary policy ought to react when the economy is exposed to different types of shock? I have discussed two types of shock: price effects from deregulations and an upward shift in productivity growth.
Urban Bäckström: What shall guide monetary policy? Speech by Mr Urban Bäckström, Governor of the Sveriges Riksbank and Chairman of the Board of Directors and President of the Bank for International Settlements, to the Swedish Economics Association, Stockholm, 17 April 2001. *  *  *  Thank you for inviting me once again to the Swedish Economics Association to discuss various aspects of the Riksbank and monetary policy. I greatly appreciate the opportunity of addressing what can be called a historical and academic forum and conducting a dialogue about economic policy both with the two opponents and with other scholars and students. The inflation target has been monetary policy’s rudder ever since 1993 and I believe most people would agree that on the whole in this period it has functioned fairly well. After a couple of decades of high inflation, we have managed to re-establish price stability. Market players as well as people in general are now more confident in and have a better understanding of the regime and the general formation of monetary policy. It also looks as though the importance of fiscal discipline as a means of supporting the monetary policy regime is anchored in the political system and in Swedish society. Sweden is not the only country where a regime with an explicit inflation target seems to be working well.