Up to that point, growth accounting analysis generally indicates that a country tends to register high economic growth through vast capital accumulation, rapidly rising total factor productivity and continued increases in labor input. Once such a point has been reached, however, growth is likely to decelerate. Nevertheless, it is still possible for a country reaching the Lewisian Turning Point to continue growing, although at a somewhat decelerated pace, through technological advances and cultivation of new markets. In the region, Japan and the NIEs managed to overcome this trap and join the group of highincome countries in the 1970s and the 1990s, respectively – as you can see in the right-hand panel of Chart 4 again. China and some ASEAN countries, including Thailand, have already reached the upper middle-income stage, which means that they have great opportunities to advance further toward high-income status. Moreover, there are many other countries in the region that are still at the lower middle-income stage, but with great potential for continued growth for years to come. The second challenge is the “demographic trap.” A number of economies in the region, particularly those at the high-income stage and, to a lesser extent, at the upper middleincome stage, are experiencing, or about to experience, population aging: the result of longer life expectancies combined with lower fertility rates. From the view point of per-capita income growth, which I believe is an appropriate measure of “living standard,” what really matters is the proportion of the working-age population to the population as a whole.
It also becomes easier to work on prevention and in various ways to counteract a serious crisis from arising. The developments include methods regarding what are known as stress tests, which analyse what happens to the banks during various sequences of events and crisis scenarios. Such models are of course important tools when it comes to crisis exercises and to adapting our preparedness for managing real crisis situations efficiently. Challenges along the way A lot has changed, both compared with when I first began at the Riksbank and over the past six years. We have better conditions for managing various challenges so that we can attain our inflation target and safeguard financial stability in the best possible manner. It is also largely a case of learning by doing. I would therefore like to take up some of the challenges  BIS Review 155/2008  3  that we and other central banks have had to deal with in recent years. These are challenges we have learnt from when we were forced to deal with them. They are also challenges that in one way or another will stimulate future developments. Rising commodity prices,… In May of this year I held a speech on the upward pressure on international commodity prices that had been exerted for some time. This applied to both traditional commodities, such as oil and metals, and to foodstuffs, such as grain. The boom in commodity prices had pushed up inflation both here and abroad, and inflation was clearly overshooting our target.