Svante Öberg: Monetary policy and the elusive resource utilisation Speech by Mr Svante Öberg, First Deputy Governor of the Sveriges Riksbank, at Handelsbanken, Stockholm, 25 May 2009. The original speech, which contains various links to the documents mentioned, can be found on the Sveriges Riksbank’s website. *  *  *  Resource utilisation is falling rapidly and is unusually low. But it is difficult to determine exactly how low it is. And it is difficult to ascertain what consequences the low resource utilisation will have for inflation and monetary policy. These are the questions I intend to discuss in my speech today. I have divided my speech into four parts. I shall begin by discussing the importance of resource utilisation for monetary policy and pointing out the differences as to how the targets for inflation and resource utilisation can be expressed. After that I shall discuss different measures of resource utilisation. I shall go on to describe monetary policy and resource utilisation at present and I shall conclude with a few summarising comments. I wish to make clear from the start that I will not make any new assessment today of the appropriate direction for monetary policy in relation to the Monetary Policy Update that was published at the end of April. I also want to point out that the picture I paint of resource utilisation and monetary policy here is not necessarily shared completely by my colleagues on the Executive Board of the Riksbank.
One can draw the conclusion from this figure that resource utilisation in terms of the GDP gap has recently  2  BIS Review 66/2009  fallen below the normal level and that we are assuming that it will remain negative over the coming years. There are both advantages and disadvantages in measuring resource utilisation with the aid of the GDP gap. One advantage is that this method does not require any other information than historical GDP data. One disadvantage is that when using this method it is difficult to estimate the trend and thereby the GDP gap at the end of the time series and it is precisely the GDP gap at the end of the series that is the most interesting part. This problem becomes particularly troublesome in a recession like the current one. This is because experiences of previous recessions imply that some of the output capacity that is lost after a fall in resource utilisation never returns when the upturn comes. Quite simply, it is easier to wind up companies than to build them up. To some extent these problems are dealt with in the Riksbank’s calculations, in that the calculation of the trend level of GDP is affected by the outcomes for years of weak GDP growth and by parts of the fall in productivity being assumed to be permanent.