for improvement. the analysis of borrowers abroad will be enhanced. the riksbank needs to acquire a better understanding of how the banks manage their liquidity, select sources of funding and the effects of this on their durability. the analysis of stability also needs to be supplemented with methods for stress tests, that is, ways of analysing the sensitivity of bank durability. to obtain further inspiration for the work of improving the analysis, the riksbank has commissioned an external evaluation of the work on financial stability. this evaluation is in the hands of a trio representing the international research frontier, the central bank world and the swedish bank sector. they will be bringing their individual perspectives to bear in a joint effort to evaluate the quality and focus of the work we have built up. we intend to publish their report and then issue invitations to a broad discussion on our work ’ s future direction. in conclusion i would like to say something - without prejudicing the trio ’ s findings - about the issues that i believe will have growing importance in the future. a natural starting - point for such a discussion is to identify forces that will be driving future financial developments. three of the main forces are : – growing cross - border integration in europe, – more advanced risk management by the banks, and – more and more of a focus on aspects of efficiency. consequences of european integration it is perhaps the increased international dependence that affects us most clearly. while the banking systems in europe are still largely national, integrated systems have started to appear in certain regions. this trend seems to have come furthest in the nordic - baltic region but there are grounds for expecting greater integration elsewhere, too. as a result, national banking systems will become increasingly interdependent. this has a number of dimensions for the riksbank ’ s work on stability. one component of our work consists in promoting integration by influencing the construction of rule systems. we do so out of a conviction that integration as such favours economic growth. the current rule systems were not designed for an integrated european bank market that transcends national borders. moreover, the common legislation takes integration into account to only a limited extent. in order to achieve an inner market for financial services, the eu is striving to produce as uniform a set of rules as possible for financial companies throughout the union. banks can then compete on equal terms and give rise to a common market with the most competitive enterprises. the riksbank supports this admirable

, from 1995 to 2000, productivity in the nonfarm business sector increased at an average annual rate of 2 - 1 / 2 percent, well above the lackluster pace of the preceding twenty - five years. then, remarkably, productivity accelerated further, rising at an average of about 3 - 1 / 2 percent per year for the first three years of this decade, despite the challenges of a recession, the fall of the dot - com market, a broad stock market correction, and the terrorist attacks. since the middle of 2004, however, the growth of labor productivity has slowed, registering an average annual rate of about 1 - 1 / 4 percent. previously, that figure had looked higher, but this summer ’ s annual revision of the national income and product accounts marked down productivity growth over the 2004 to 2006 period by an average of 0. 3 percentage point per year. part of the recent deceleration in productivity almost surely reflects a typical cyclical response to a slowing economy. the difficult questions, of course, are whether some of the recent slowing also reflects a downshift in the underlying trend, and, if so, to what extent? the latest evidence suggests that structural productivity might be increasing somewhat more slowly than it did during the second half of the 1990s, but the confidence band around any such estimate of trend productivity growth surely is very wide. 2 these issues remain an area of active debate, the outcome of which will be essential for gauging the economy ’ s potential rate of growth going forward. let me turn now to inflation and inflation dynamics. over the past year, the price index for total personal consumption expenditures ( pce ) rose 2. 1 percent, down from nearly 3 - 1 / 2 percent during the comparable period twelve months earlier. recently, topline inflation has been boosted by sizable increases in food prices ; energy - price increases slowed considerably over the past twelve months after sizable advances in earlier years. excluding food and energy, core pce prices decelerated over the past year ; the july reading on the twelve - month change stood at 1. 9 percent, almost 1 / 2 percentage point less than it was a year earlier. in my view, inflation expectations have been a key element in the recent performance of core inflation. by a range of measures, inflation expectations appear to have remained contained even as headline inflation moved temporarily higher. according to the reuters / university of michigan survey of consumers, the median expectation of inflation five to ten years ahead has been essentially flat