companies and between companies. the expansion of the it sector was one of the corner - stones of this " new economy ". the effect this actually had on productivity has been much discussed. it is clear that the it sector itself, and in particular the telecom industry, was responsible for a significant part of productivity growth at the end of the 1990s. developments were very uneven among the different industries, with the increase in productivity in " it user " industries being much less impressive, despite large investments in it products, than that in the " it producer " sector. the latter is also clearly illustrated when the productivity increase in trade and industry is adjusted for the increase that took place in the telecom industry ( figure 5 ). when this sector is excluded, productivity during the second half of the 1990s increased by only 1. 9 per cent a year, compared with 2. 8 per cent if the sector is included. the telecom sector has now greatly declined in importance and there is apparent confusion over its future development. the important question for the riksbank is what all of this entails for the development of long - term productivity growth in future. the figure shows that the trend increase has not been as large at the end of the 1990s as during the period up to 1995. it should also be remembered that the method used to calculate the trend has the characteristic that it reflects changes in the actual underlying trend at a slower rate. in addition, the very high rates of increase for productivity during the latter part of the 1990s reflected both a relatively rapid growth in the private sector relative to the public sector and a strong growth in the it - producing sectors, particularly the telecom industry. it is not likely that future developments will follow the same paths. nevertheless, there are many indications that the long - term increase in productivity now is higher than it was during the 1970s and 1980s. factors in favour of this are the fairly comprehensive changes that took place during the 1990s, particularly the introduction of the new stabilisation policy regime and a greater degree of openness in the swedish economy. labour supply a major cause for concern let us now move on to study how the labour supply has developed during the same period of time. my next slide shows the actual growth and trend for the number of hours worked ( figure 6 ). to begin with, one can conclude that developments have been relatively adverse during the greater part of the 1980s and 1990s. according to the trend, we can actually only detect an increase during the second half of the 1990s,

of course, the resource situation is strained ; bottlenecks begin to arise in the economy. the reverse applies with a negative production gap. as the production gap is usually seen as a measure of the demand pressure in the economy and the demand pressure in turn affects inflation, monetary policy is in many respects a case of choosing a steering interest rate that will lead to the smallest possible production gap. if the production gap is completely closed and equal to zero - i. e. actual and potential production coincide - the inflation rate should be 2 per cent as long as a credible policy is pursued and no other shocks occur. figure 1 illustrates in principle possible future developments. an important insight in this context is that changes in the steering interest rate are significant for production and employment in the short term, but not in the long term. if prices and wages do not adapt immediately - i. e. there are nominal lags - changes in nominal quantities, including the riksbank's repo rate, will entail changes in relative prices and real wages. these real price changes affect the economy's real aggregated demand and thereby both production and employment. if, for instance, wage agreements are signed for longer periods of time, while companies'pricing is more flexible, lowering the steering interest rate can have real economy effects in the short term, because companies'price increases will lead to lower real wages and higher profits and thereby increased production and employment. in the longer term, when new wage agreements are signed wage formation will take into account the higher price increases and be adapted to avoid changes in real wages. by changing the steering interest rate, the riksbank can affect the actual, short - term production level but not the potential, long - term level. the latter is determined, as i said earlier, by factors such as technological developments, labour supply, etc. on the other hand, it is probable that monetary policy can indirectly, by contributing to a more stable economic development, create better conditions for good growth in the long term. reliable assessments of the potential growth capacity of the swedish economy are very important for successful conducting monetary policy. given this, it is perhaps not so surprising that we have spent a significant amount of our time in recent years making analyses of issues related to economic growth. this is demonstrated in our working report series, which contains a relatively large number of studies on this subject. a complicating factor with regard to studies of potential growth is that they entail a quantity that cannot