In particular, a one-off shift in the level of wages as part of the adjustment to a transitory unexpected increase in the price level does not imply a trend shift in the path of underlying inflation. Moreover, in examining the implications of the current increase in energy prices, it is necessary to take into account the full macroeconomic implications of adverse external shocks and supply shocks in the energy sector, including the associated headwinds for the economic outlook and the negative wealth effect associated with a deterioration in the terms of trade. Through these mechanisms, an energy price shock can simultaneously raise headline inflation but exert downward pressure on the path of underlying inflation. In addition to rate forward guidance, calibrating the volume of asset purchases also plays an important role in ensuring that the monetary stance is sufficiently accommodative to deliver the timely attainment of our medium-term two per cent target. In particular, the compression of term premia through the duration extraction channel plays a quantitatively-significant role in determining longer-term yields and ensuring that financing conditions are sufficiently supportive to be consistent with the delivery of our medium-term inflation objective.2 In conclusion, in addition to learning from the research presented and discussed at this year’s event, I look forward to seeing how this year’s strategy review (and our ongoing implementation of the strategy) shapes the research that will be presented in future editions of this annual conference series. With that, let me offer my best wishes to all conference participants for an exciting two days.

The narrower the gap between actual production and the capacity ceiling and the lower unemployment happens to be in relation to its equilibrium level, the greater will be the risk of higher inflation. From this also follows a need to know whether the equilibrium level of unemployment has risen. If that is the case, measures should be taken specifically to lower the equilibrium level, a task that is outside the scope of monetary policy. Where is unemployment’s equilibrium level? What is unemployment’s current equilibrium level in Sweden? As always when one goes from a theoretical analysis to practical economics, everything becomes much more complex. Unemployment’s equilibrium level is not an observable quantity. One has to make do with estimates and their inevitable uncertainty means that interpretations have to be cautious. The available estimates suggest that equilibrium unemployment in Sweden moved up in the early 1990s and, in terms of registered unemployment, is now somewhere in the interval between 4.5 and 7.5 per cent.3 The OECD also counts on a marked increase in the 1990s; in the latest report on Sweden the current level is put at between 6 and 7 per cent.4 There is not, in fact, complete agreement that equilibrium unemployment has moved up sharply.5 But what suggests that it has, even though we cannot be sure of its exact level, is that otherwise the high unemployment should have acted as a strong restraint on wage formation. The actual development of wages does not indicate this. 3  See e.g.