is also interesting in this context to compare how developments in sweden compare with other countries, particularly the united states. these comparisons are made more difficult by the fact that comparable statistics are hard to find. however, the statistics that are available indicate the factor productivity growth is relatively good in sweden ; much better than in the euro area, for instance. to summarise, we can conclude that there has been an upturn in productivity development in recent years. earlier economic patterns are not being repeated entirely. however, it is difficult at present to establish what lies behind the upturn. the situation is reminiscent to some extent of that we saw for a few years at the end of the 1990s. then, as now, there was reason for a wait - and - see policy, but not to reject outright the idea that what we see is a clear change. in any case, some importance should be attached to the new figures when taking a policy stance, although we must try even harder to understand what is happening. the monetary policy debate allow me to say a few words in conclusion regarding the recent, lively debate on monetary policy. this is because i have received many questions on this subject in recent weeks. however, it is not always easy to get a subtle message across when the media debate is so intense. i therefore decided at an early stage of the discussion to take up this question in greater depth here at the economics association, a suitable forum for a penetrating and relatively non - media discussion. before i try to explain my views on some elements of the discussion, i cannot resist pointing out that i found the tone of the discussion somewhat surprising. sweden has come through the recent economic slowdown better than many other countries. personally, i also felt much greater concern over economic developments and monetary policy at the end of spring and beginning of summer 2003 than i have done in recent months. the reason is simple. at the end of last spring, the inflation rate was still high. although we believed it would fall, there was a clear risk that it could become entrenched. meanwhile, there was considerable uncertainty over international economic activity ; would there be a turnaround and if so, when? this could mean we are forced to make difficult judgements. for instance, we might be forced to raise the interest rate even if economic activity weakened. now the situation is fundamentally much better, with declining inflationary pressure combined with increasing growth. nevertheless, the debate is much tougher. why, one might ask. what

mr backstrom reports on the swedish economy and monetary policy speech given by mr urban backstrom, governor of the sveriges riksbank and chairman of the board of directors and president of the bank for international settlements, to the foreningssparbanken, in malmo on 16 february 2000. * * * the repo rate increases in order to understand why the riksbank has raised the repo rate in two steps from 2. 90 % last november to 3. 75 % less than a fortnight ago, it is necessary to consider the situation in 1998. the mood at that time, in the global economy as well as in sweden, was coloured by the asian crisis, the suspension of russian payments, the problems with the hedge fund long term capital management and falling stock - market prices. it was considered that in addition to direct problems, the financial crisis in the autumn of 1998 would have negative effects on real economic activity. forecasters altered their assessments and the prospects for global output and inflation were revised downwards. central banks around the world did likewise and the riksbank was no exception. instrumental rates were reduced in many countries. between the early summer of 1998 and the spring of 1999 the riksbank cut the repo rate by a total of 150 basis points, bringing it down from 4. 40 to 2. 90 %. the actions of central banks probably mitigated effects of the various shocks. they helped to check the signs of panicky behaviour in the market and then to restore a more optimistic assessment of the future. at the same time, the process displayed some ability to heal itself. all this has contributed to a rapid recovery in the global economy as well as in sweden. the current picture of many economies is thus very different from the uneasy situation that prevailed during 1998 and the early part of 1999. global growth prospects are appreciably better and the risks connected with inflation have changed. that is also why instrumental rates were adjusted upwards by many central banks last autumn and early this year. in principle it can be said that inflationary pressure follows a cyclical pattern. when economic activity is strong, demand growth tends to exceed the expansion of capacity and this normally leads in time to an accelerating rate of price and wage increases. conversely, weak demand may lead to the prospect of inflation being below the target one to two years ahead. as a rule, the repo rate should be raised in the former case and lowered in the latter. in this way, the rep