accounts are admittedly preliminary but the tendency behind them is clear : gdp growth fell back from an annual rate of 3 - 4 per cent in recent years to just under 2 per cent in the first half of this year. thus, the world economic slowdown has helped to bring about a downward adjustment of demand growth in sweden towards the long - term path without the riksbank needing to lift the repo rate up to between 6 and 7 per cent, as the central banks in a number of other countries have been obliged to do. how does the krona come into it? but it is not only the interest rate that influences the development of demand and ultimately the rate of inflation. the exchange rate also plays an important part. among other things, a weak exchange rate tends to stimulate exports and other segments of swedish production that are exposed to international competition. that could limit the impact of an international economic slowdown. conversely, an appreciation of the krona can act as a brake and modify the pull from an economic improvement in the rest of the world. another effect of a weak exchange rate concerns the prices of imported goods and services, with the risk of a pass - through to consumer prices. in the 1970s and ’ 80s, currency devaluation was frequently used as an instrument for stimulating the economy. the development of demand was boosted via production for export at the same time as imported goods became more expensive. in time, however, inflation began to move up. now that sweden has a flexible exchange rate regime, things work somewhat differently. if the krona weakens and firms and households perceive this as a transient movement, the effect on inflation will not be as strong as before, when a currency write - down was seen as a more permanent measure. this has contributed, for example, to an import price pass - through to consumer prices in the 1990s that was smaller than earlier. but the magnitude of the effects on demand and inflation with a flexible exchange rate regime will obviously depend on how much the value of the krona changes. even with such a regime, a large shift - upwards or downwards - in the value of the krona will have some effect on demand and prices. since last summer the swedish krona has weakened by between 10 and 15 per cent relative to a weighted currency basket. all else equal and given that such a depreciation were to be permanent, the stimulus to the swedish economy would be fully equal to the effect on the united states economy of the federal reserve ’ s

established its credibility. turning more specifically to the situation in sweden, it can be said that the macroeconomic conditions today are favourable : inflation is low, budget deficits have been transformed into surpluses and the prospects for growth are good. however, economic policy is a continuous learning process and the successes of recent years should not be taken as evidence that the structural problems have been solved. on the labour market, for example, structural rigidities remain ; also, the tax - pressure is still high, which inevitably distorts incentives to work and save. as far as monetary policy is concerned, the credibility of the inflation target regime has as yet hardly been tested in a period of economic upturn. what does this mean for how much and how often monetary policy should react to changes in the economic outlook? this, of course, is a question that the executive board of the riksbank addresses on an ongoing basis, communicating its views in inflation reports, the minutes of its meetings and speeches. in general terms, it can be said that the need for action should be based on the outlook for domestic demand, the stringency of fiscal policy and international trends. in addition, inflation expectations play a key role as an overall indicator of inflationary pressures. in a situation where inflation risk premiums are low, an independent central bank with a price stability target can also contribute to stabilising the economy around its potential growth. how far does this responsibility extend? according to the way the riksbank has explained the target, annual inflation measured by the cpi is normally to be restricted to 2 % with a tolerance interval of ±1 percentage point. in the event of a deviation from this target, inflation is normally to be brought back on target within 1 - 2 years. in the event of a major deviation, caused for example by a major external disturbance, there may, however, be reason to extend the horizon of the target so as to limit fluctuations in production and employment. in other words, in these circumstances it may be too difficult or too costly for monetary policy to quickly bring inflation back on target. the “ new economy ” let me now take up another question that is the subject of much discussion both in the media and in academic circles : the existence of a “ new economy ”. when people talk about this, their eyes are turned primarily towards the american economy. the concept seems to be capable of covering many phenomena. in this context i define the “ new economy ” as an increase in the potential growth