During that time, the Riksbank was legally responsible for the exchange rate regime, and the reasons therefore for considering ERM participation were quite simply to prevent the regime of floating exchange rates from constituting a formal obstacle to Swedish participation in monetary union, in the event this was to become a possibility. When the government then decided that there was insufficient popular support for Swedish participation in monetary union, the question of changing the exchange rate regime was dropped. In connection with the Riksbank being made formally independent in 1999, new legislation on exchange rate policy was also introduced. Nowadays, it is the government that decides upon the issue of our exchange rate regime, although the Riksbank determines how it is to be implemented. In other words, it is the government that would decide whether and when the krona should join the exchange rate mechanism ERM2. Following that, the ministry of finance and the Riksbank would decide what rate between the krona and euro we assess to be consistent with a stable development of the economy. There are very good reasons to agree upon a common line of action. This is why we are holding discussions already among toplevel officials about an appropriate line of reasoning, the results produced by different estimation methods, etc. If we do not reach agreement, it is likely to be difficult to hold effective discussions with our European partners.
Examples of such factors are, internationally determined raw material prices, changes in taxes and subsidies and interest expenses for housing. An increase in value-added tax would, for instance, temporarily lead to increases in CPI. To counteract such price increases, monetary policy would be forced to dampen the real demand in the economy regardless of the level of resource use in the economy. To avoid such unnecessary fluctuations in production, we disregard from factors which we assess only temporarily affect consumer prices, for example interest expenses, taxes and subsidies. The inflation target regime tested in a strong upswing! Before the economy had adapted to the new inflation target regime and inflationary expectations still remained at too high a level, it was not as evident that monetary policy in the short term could contribute to maintaining the growth of its long-term growth track. In order to bring inflation expectations down, higher interest rates were required and thus lower demand than if inflation expectations had immediately been adapted to the new regime. Although the economy is now approaching balance, all parts of the low inflation regime have still not been tested. During the entire 1990s, the use of resources has been under its long-term growth track. It is first during the few years to come that we will have a real test of how well the new regime has penetrated in Sweden. In earlier speeches, I have developed my ideas around the mode of functioning of the labour market.