better than it was in the mid1990s. it is also interesting to study inflation expectations. although inflation has on average remained fairly close to 2 per cent, there have been both shorter and longer periods when inflation has deviated significantly from the target. the past few years are such an example. inflation has been below target, which is largely due to productivity having developed much more strongly than we had expected. how has confidence in monetary policy been affected by the deviations we have experienced? even though inflation expectations can be measured in different ways, i think that the overall picture is clear. from around 1996 - 97 expectations have been in line with the target a couple of years ahead. this is of course pleasing, and a much better development than many people expected when the new monetary policy regime was introduced in the early 1990s. however, the stabilization policy change in regime was not only about monetary policy. compared with other countries that have implemented similar reforms, it is perhaps primarily the changes in fiscal policy that distinguish sweden. during the mid - 1990s a radical consolidation program was implemented, with broad parliamentary support, and a framework with an expenditure ceiling and target balance was introduced. the relatively good central government finances over the past ten years have undoubtedly been a source of strength for the swedish economy. the riksbank ’ s monetary policy framework and strategy let me now, with this as background, move on to describe our monetary policy strategy in slightly more detail. 1 the inflation target the riksbank has chosen to specify an explicit target for inflation. the target is for the annual rate of change in the consumer price index, cpi, to be 2 per cent, with a tolerance for deviations of ± 1 percentage point. the decision to define the target for monetary policy clearly in terms of a specific figure was of course partly due to the desire to create a nominal anchor that everyone could recognise and base their expectations on. however, another important reason was that it would facilitate assessments of the riksbank ’ s activities and make the bank more easily accountable. this is particularly important now that the bank is so independent. inflation can be measured in many different ways. the riksbank chose the cpi as target variable partly because it is a broad price index that represents typical purchases made by consumers, and the index is familiar to the general public. however, the development of the cpi cannot always indicate what monetary policy is needed at a particular time – no single inflation measure can do this. the riksbank therefore uses different

time, the public sector is in practice forced to intervene if the failure comprises a threat to the system, regardless of whether it has been able to exercise supervision. to what extent enron was involved with functions that can be assessed as worth protecting is a question for discussion, but it is an important question of principle. we cannot and should not regulate all companies involved with financial operations, e. g. in managing their own funds. secondly, it appears obvious that accounting regulations, at least those in the us, have not developed at the same rate as the instruments and forms for capital acquisition on the financial markets. is it really reasonable in the long term for an increasing number of companies'risks to be reported off balance sheets? in the case of enron, it also appears that there were risks that did not need to be reported at all, according to the regulations in force, such as liquidity risks that were triggered by a down - rating. thirdly, it is educational ( and frightening ) to see exactly how the shortage of liquidity brought about enron's downfall when questions were raised regarding the quality of the balance sheet and the market lost confidence in the company. enron's balance sheet had some similarities with that of a bank, in that the liabilities side consisted of borrowing that proved to be rather short term, while the asset side was difficult to value and had much poorer liquidity. a bank that found itself in an equivalent situation could face a run, with customers withdrawing their deposits, and this was really what happened to enron. this makes some form of liquidation necessary, even if there later proved to be some value left in the balance sheet. the experiences of the enron case led to investors temporarily fleeing companies with complicated constructions and ownership or companies suspected of being rather too creative in their accounting. however, this seems to be just a temporary phenomenon. companies'credit spreads have not been affected as much as was feared and the stock market shook a little, but has begun to recover again. the effect appears rather to have been that accounting methods and procedures have been voluntarily revised, a development welcomed by both market operators and authorities alike. perhaps the enron case can become a further indication that the markets have actually become more robust. however, the enron collapse also illustrates clearly some of the risks that might arise when the markets grow in both significance and complexity. these risks and their effects on the real economy should not be underestimated. the markets'increasing dependence on