meeting on 11 november to conduct monetary policy in a less expansive direction. the repo rate was therefore increased by 0. 35 percentage points to 3. 25 %. as has been said, the difficult balance to be struck in the present situation is to adjust the instrumental rate at a rate that does not interrupt the upswing in capacity utilisation but does it with sufficient foresight to avoid a drastic rise. we do not want to experience “ stop - go ” policies again. let us not forget the late 1980s and early 1990s. that period represents a tragic failure for economic policy, a failure that cost sweden destruction of both physical and human capital. earlier in my speech, i pointed to the imbalances in wage formation that could lead to inflation accelerating if they are handled incorrectly. this would make monetary policy tightening necessary that would risk interrupting growth and structural transformation, because the inflation target is mandatory and will not be given up. the riksbank has both the instrument and the political mandate to achieve the target of 2 % ’ s inflation. the issue then is not whether the inflation target will be met but the consequences that achieving the inflation target will have for the rate of growth and employment in the medium term. the riksbank is responsible for achieving the inflation target, but responsibility for the positive development that we can now see in front of us being sustained over a longer period, is shared by everyone in sweden.

lars heikensten : the riksbank and stabilisation policy speech by mr lars heikensten, governor of the sveriges riksbank, at a discussion seminar of lo ( the labour organisation ), stockholm, 24 may 2005. * * * let me begin by thanking you for the invitation to attend this seminar. i look forward to an interesting and rewarding discussion. the invitation to the seminar contained a list of questions for discussion. i intend to structure my contribution in terms of working my way down the list and giving my views on these questions. before i do so, however, i would like to take this opportunity to say that i appreciated the section on stabilisation policy ’ s possibilities and limitations in the lo economists latest “ economic prospects ” report. although i do not agree with everything – which will become clear later – i perceived the article to be serious and searching in a positive way. is stabilisation policy important? my answer to this question is ( of course ) : yes, stabilisation policy is important. one only needs to look at our experiences in the 1970s and 1980s to realise this. what happened then was that the policy conducted could not sustain an adequate balance in the economy. the policy conducted was often too expansionary, which created an environment where it was difficult to keep price and wage increases at a reasonable level. the rapid increases in wages and prices were repeatedly in collision with the fixed exchange rate. the result was that the krona was devalued several times from the mid - 1970s onwards. the economy underwent " boom - bust - cycles ” with alternate sudden braking and strong stimulus for acceleration. this policy had devastating effects on many aspects of economic developments. sweden lost ground in terms of prosperity, while growth in real wages was largely non - existent. this situation finally become untenable and after the fixed exchange rate system was abandoned in november 1992 there was a clear shift in stabilisation policy regime. when one looks back over the period since then, i believe that most people will agree with me that the new regime has been successful. sweden is no longer afflicted with excessively high inflationary trends, recurring cost crises and high interest rates. the more stable environment has contributed to better growth in prosperity. the new regulations have also created other, better frameworks for wage formation, a point often emphasised by lo representatives. trade union organisation no longer need to play along in a destructive game where high nominal wage increases