Moreover, the Government Bill (1997/98:40) lays down that in order to increase the possibility of democratic control, the statutory objective should be given its specific content by the Riksbank. Furthermore, in the prefatory documents it is said that as an authority under parliament, the Riksbank shall self-evidently support the general goals of economic policy, for example sustainable growth and full employment, in so far as they do not conflict with the objective of price stability. It was not considered necessary to legislate these obligations. 2. The inflation target and price effects of deregulations  Market deregulation can have considerable effects on price formation. The immediate effect of a deregulation is often that the price falls, sometimes almost at once, so that the rate of inflation is lowered for the time being. All else equal, the rate of inflation then returns to the initial level as the months on which the statistical comparison is based move forward. Normally, however, deregulations also affect the conditions for competition and price formation in the longer run. I should add here that rising competitive pressure can also affect productivity but the economic effect of productivity growth is something I shall be considering later. A particular, limited deregulation need not call for measures of monetary policy.
If a deregulation stems from political decisions that could not be predicted, or its effects on inflation are calculated to disappear in less than one to two years, it will not elicit a reaction from the Riksbank as long as the rule of action is adhered to. The situation is different, however, if the economy goes through a series of deregulations or the price effects of a single deregulation continue for several years. This may lead to inflation being below the target more permanently, which in turn ought to lead, according to the rule of action, to a downward adjustment of the instrumental rate. The stimulus from monetary policy acts through the usual channels. So all else equal, one can expect a fall in market interest rates, rising share prices, a stronger expansion of credit and so on. General demand rises, employment moves up, unemployment falls and the inflation target is fulfilled. When the price effects have waned, there is a risk, if nothing else intervenes, of inflation rising above the target. To counter this, monetary policy responds by gradually increasing the instrumental rate again. Market interest rates move up, share prices fall and the growth of credit slackens. In other words, the customary transmission mechanism now works in the opposite direction, leading to some fall in production and employment as well as in resource utilisation. Another component of the process is the higher inflation’s limiting effect on household real income, just as the lower inflation benefited household income.