international competition, the latter boosted by membership of the eu and the ongoing integration of the world economy. so, sweden ’ s economic performance after the crisis in the early 1990s has been healthy in many respects. this does not mean that there are no problem areas. one of these is employment. there was indeed a relatively fast upturn in employment after the crisis years. it has also proved possible to combine low unemployment, compared with other european countries, with low inflation, contrary to what many experts expected. but open unemployment has only come down towards 4 per cent in a few occasional years, and stands today at 5. 5 per cent. the number of employed now is lower than before the crisis, and some 1. 2 million people of working age ( 16 - 64 years ) are not participating in the labour force. the regime shift and employment against this backdrop it's not surprising that a lively debate arises from time to time about unemployment and what can be done about it. what is perhaps more surprising is that some people still assert that the shift in stabilisation policy regime at the beginning of the 1990s is what has caused unemployment to be higher today than it was during the 1970s and 1980s. sometimes the argument goes that sweden has given up its previous objective of full employment in order instead, for some more or less obscure reason, to introduce a target for inflation. if we only were prepared to return to the high - inflation policies of the 1970s and 1980s, then everything would be better. there is much to say about this. firstly, it is difficult in a more general sense to imagine that the markedly improved stability in economic policy that the shift in regime brought about in the long run could be something negative for employment. instead, there are many reasons to believe that more stable economic performance over time also leads to conditions that foster high growth and employment. moreover, a simple comparison of unemployment data between the periods before and after the shift in regime proves rather misleading. this is because of the attempts in the 1970s and 1980s to meet the target of full employment through a policy that was unsustainable in the long run - it was exactly because of this that the change in regime was implemented. as i mentioned earlier, this policy involved sweden devaluing the krona as soon as we were hit by a cost crisis that resulted in weaker developments in exports and employment in the private sector. the devaluation of the krona restored competitiveness by lowering real wages for a number of years until excessive increases

look at inflation expectations ; have they been affected much by the fact that we sometimes have missed the target or that we on average have been slightly below it? ( chart 4. ) even though inflation expectations can be measured in different ways, the overall picture is clear. from around 1996 - 97 expectations have been fairly well in line with the target a couple of years ahead. sometimes, of course, they have moved according to the actual inflation rate, but they have not been much above or below the target for any appreciable length of time. this is a much better performance than most expected when the monetary policy regime was changed in the early 1990s, and many doubted that we would attain the low, stable inflation that we actually have achieved. allow me to make a comment in this context. sometimes, it is claimed that the riksbank acts asymmetrically, being more focused on avoiding exceeding the target than falling short. however, this view is not supported by measurements of inflation expectations : economic agents do not believe that we have a “ secret agenda ”. instead, they believe that we try to do exactly what we are doing : trying our best to achieve inflation of 2 per cent and a stable economic performance in sweden. reasons for target deviations so what has caused the target deviations in the past ten years? four factors seem to have been especially significant : • at the beginning of the period with an inflation target, particularly in 1996, the cpi was affected considerably by the dramatic decline in interest rates that ensued when the credibility of the new regime was established. • on a couple of occasions in the past years, rapid rises in energy prices in particular, but also in food prices, have pushed up inflation. the rises were essentially related to supply factors, such as water shortages in hydroelectric power companies ’ reservoirs. the effects were judged to be temporary, which also proved to be the case. • during certain periods, not least recently but also in the latter part of the 1990s, imported inflation has been unexpectedly low. • at the end of the 1990s and the beginning of this decade, productivity growth has been unexpectedly robust. it is interesting to note that during several periods when inflation was below target, monetary policy was clearly loose at the same time as gdp growth was high. but in spite of this, inflation has been too low. what has happened above all is that unexpected supply changes have dampened inflation. this has been a global phenomenon to a large extent ; in other words, a