This would entail prejudicing, or setting aside, the price-stability target. Without prejudicing the price-stability target, monetary policy cannot aim at a higher level of resource utilisation than the normal level. It is thus a misconception, and unfortunately a common one, that the stipulation to not prejudice the price-stability target means that monetary policy should only aim to stabilise inflation around the inflation target irrespective of what happens to resource utilisation, what is usually referred to as strict inflation targeting. The stipulation means instead that monetary policy should also stabilise resource utilisation, but around a normal level, not a higher level. As far as I can judge there is now general agreement about this interpretation of the provisions of the Sveriges Riksbank Act and its preparatory work. So, at every monetary policy meeting we, that is the members of the Executive Board, have to decide what repo-rate path will best stabilise inflation and resource utilisation. The Riksbank usually expresses this by saying that monetary policy should be well balanced. If there is a conflict between stabilising inflation on the one hand and stabilising resource utilisation on the other, then a well-balanced monetary policy entails a reasonable compromise between the two. Such a conflict is in fact regarded as the normal situation, but a conflict does not always exist. In my view, there is no such conflict at present.
Then, I will address resource utilisation’s significance for monetary policy, give an account of the Riksbank’s calculations of potential GDP, discuss the impact of the financial crisis on potential GDP, give an account of different measures of resource utilisation and what they say about resource utilisation at present, and conclude by addressing the need for continued analyses. GDP grows over time, but the rate of growth varies GDP growth since 1950 is illustrated in Figures 1 and 2. What is known as an HP trend is also included in the figures. I will return to these HP trends later. Seen over the entire period from 1950 to 2010, GDP has increased by an average of 2.7 per cent per year. Growth was significantly stronger in the 1950s and 1960s compared with the 1970s and 1980s. There then followed a ten-year period from the mid-1990s with relatively rapid GDP growth and associated relatively rapid productivity growth. In earlier seminars, we have discussed the reasons for the strong productivity growth during this later period. I myself have pointed out a number of possible explanations.1 Globalisation through the expansion of the EU, the opening up of the economies of eastern Europe and China’s rapidly-growing international trade have increased competition, which has been particularly significant for Sweden, with our substantial foreign trade and high proportion of international companies. Furthermore, a number of product markets were deregulated in the 1990s (taxis, domestic flights, postal services, telecommunications, electricity etc.). Sweden also has high proportions of IT production and IT use in production.