policy decisions. for instance, how much a change in the policy rate affects the probability of a financial crisis can be calculated. the trade - off is subsequently performed between objective fulfilment in terms of inflation and resource utilisation during the forecast period, and the risk of very poor objective fulfilment further ahead due to a financial crisis. a consequence of this approach is that it has to be based on longer time horizons than currently since the build - up of financial imbalances occurs over longer periods of time. norges bank has chosen a different approach in which an explicit term is incorporated into the loss function of the monetary authority. the purpose of this term is to capture that, in addition to the price stability and sustainable resource utilisation targets, financial stability should also be accounted for. whatever approach chosen, in order to give financial stability a greater role in the monetary policy decisions, the use of financial variables as indicators in monetary policy decisionmaking will increase. measuring financial stability is often difficult to measure the extent of financial stability requires a broad approach which can often resemble detective work. the stability report which we publish twice a year is an example of bis central bankers ’ speeches the type of comprehensive analysis that is needed. it describes a series of indicators, for example credit growth, risk premiums, and the development on various asset markets. from this year, we have also introduced an annual report of our assessment of sweden ’ s financial infrastructure. taken together these indicators often give a good picture of the financial situation. hence, the extent of financial stability cannot be summarised in a single, simple financial variable. this type of measurement problem is in fact also apparent in the inflation rate and the resource utilisation. the formal inflation target for the riksbank is measured using cpi, but we also use various measures of underlying inflation. in order to measure resource utilisation, we look at a series of different measures such as the gdp gap, unemployment gap and the employment gap. for inflation and resource utilisation, we have long learned to use different measures even though we know they are inherently uncertain. applying that experience will be useful when it now comes to evaluating different measures of financial stability. financial stability cannot be assessed by relying on various indicators alone, though. the reasons for the development must also be understood. it can be compared to the reasoning of central banks in assessing inflation. an increase in inflation does not in itself constitute a reason for increasing the policy rate. appropriate

colleague governor mike kelley has stated that we are likely to see some disruptions to economic activity because of year 2000 problems but the effects are likely to be temporary and quickly reversed. this outcome also seems likely to me. overseas, the early signs are that europe has successfully converted its computer systems to the euro, but there were some periods early in the transition when the settlement of some cross - border transactions in europe did experience end - of - day glitches. it is now important for senior management of major european institutions to turn their attention to preparations for the year 2000. asian financial and other business firms, too, should focus energy on preparing for the year 2000 even as they are restoring fundamental financial soundness. indeed, the events of the last 18 months have probably distracted their attention from this problem. it is in everyone ’ s interest that we not become complacent as we enter these last 12 months before the start of the new millennium. conclusion the federal reserve has an important role to play in our economy. however, our role in the economy should be kept in perspective. we control just a few of the levers that drive the economy. we observe consumption, investment and labor market decisions and try to adjust monetary policy to the signals that we receive so that our nation ’ s economic welfare is not threatened by inflation or by growth that is below the economy ’ s potential. however, it is the decisions and actions that you take as consumers and business managers that ultimately determine the health of the united states economy. despite difficult periods, 1998 turned out to – 6 – be a very good year because of a mix of private action and economic policy. i hope that 1999 will be as good to us all. * * *