My own assessment is that the GDP gap was around + 2 per cent in 2007, prior to the start of the crisis, and that potential GDP has declined by around 4 per cent as a result of the crisis. The GDP gap therefore only fell by around 6 per cent between 2007 and 2009, despite actual GDP declining by around 10 per cent in relation to the trend. The GDP gap was thus approximately – 4 per cent in 2009 when the recession was deepest. According to current forecasts, the GDP gap will have closed by the end of the forecast period three years from now. I intend to begin by talking about what the real economy – in other words, production and employment – means for monetary policy. I shall then go on to talk about how one can measure potential production and resource utilisation – two central concepts in this context. Then I shall discuss what has happened to GDP in conjunction with the financial crisis. After that, I will describe what different methods can tell us about potential GDP and resource utilisation. Finally, I intend to talk about the significance of resource utilisation for inflation and current monetary policy. What does the real economy mean for monetary policy? The overall principles for monetary policy are described in the publication Monetary Policy in Sweden. 1 It states the following:   “According to the Sveriges Riksbank Act, the objective for monetary policy is to maintain price stability.
Total GDP growth for the three years 2010–2012 is just above 10 per cent, which is four percentage points more than growth according to trend of just above 6 per cent. What does resource utilisation mean to inflation and current monetary policy? Previously, I said that the Riksbank also strives to stabilise production and employment around development paths that are sustainable in the long term, and that by potential GDP I mean the level of GDP that is compatible with a utilisation of available resources sustainable in the long term and that will not push inflation up or down. As you know, the target for monetary policy is to keep inflation at a low and stable level. However, one problem when shaping monetary policy in practical terms is that the link between resource utilisation and inflation is not particularly clear. I will now discuss what resource utilisation means to inflation. 6  BIS Review 130/2010  In Sweden, the link between resource utilisation and inflation has been weaker since the mid1990s than it was previously. This is due to the fact that monetary policy has gained a high level of credibility. As long-term inflation expectations among households and companies are now solidly anchored around the inflation target of 2 per cent, there is simply not much scope for other variables to affect inflation. However, it is also due to the fact that inflation is affected by many other factors than resource utilisation, such as variations in energy prices, exchange rate fluctuations and changes in interest rates.