The crucial factors for this are quite different, such as capital formation, demographic trends, advances in technology and education, how the economy functions, etc. Some scope for stimulating the economy may exist in the short run but this presupposes an established confidence in economic policy’s commitment to price stability. If economic agents have doubts about economic policy, attempts to stimulate demand will be liable to elicit an upward shift in the rate of inflation that is expected by firms, households, trade unions and others. Wages and prices may then start to chase each other as they did in the 1970s and 1980s. The longer market rates of interest, which the Riksbank can influence only marginally, will begin to move up and the ultimate effect on demand may be the opposite of what was intended. The outcome may be a combination of low growth and high inflation. Much accordingly depends on the confidence that the price stability policy enjoys. In an economy where a low inflation policy is firmly established, it is easier to lower the interest rate without eliciting uncertainty about monetary policy’s long-term commitment. There is, quite simply, more room to manoeuvre. But this does of course presuppose that the outlook for future inflation condones such a policy. Independence and accountability The institutional framework for monetary policy is important for underpinning confidence in long-term economic policy.
Caleb M Fundanga: Trends in central bank governance Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the seminar on “Trends in Central Bank Governance”, Livingstone, 28-29 February 2008. *  *  *  His Honour the Vice President Her Grace the Mayor of Livingstone The Chairperson Central Bank Governors and Deputy Governors Board Members of Central Banks Resource Persons Distinguished International Participants Ladies and Gentlemen On behalf of the Bank of Zambia and indeed on my own behalf, I would like to extend a very warm welcome to you all to this important seminar on “Trends in Central Bank Governance.” To our colleagues from outside Zambia, I wish to extend a special welcome to you to Zambia, in particular to Livingstone, our tourist capital especially at this time of the year. Like the rest of Zambia, Livingstone is a city of tranquility with an easy-going African charm. Apart from the famous Victoria Falls, there are many other tourist spots such as the Mukuni Cultural Village, curio markets, the Game Park, the National Museum, railway museum, e.t.c. I therefore urge you to find time or indeed stay an extra day or more to sample this special menu that Livingstone can offer. Like other participants, I am glad to be part of this rare gathering of imminent experts.