the transition from high inflation would be costly in terms of temporary job losses and a decline in income. but that cost is now behind us and the conditions are in place for a lower level of unemployment in the long run. however, this requires a willingness to discuss the real causes of the weak employment growth in sweden. 1. inflation rate annual percentage change inflation rate average inflation rate 1975 - 1994 8. 1 % 1965 - 1974 5. 6 % 1956 - 1964 3. 4 % - 2 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 - 2 source : statistics sweden 2. averages for the periods 1970 - 1989 and 1995 - 2003 1970 - 1989 1995 - 2003 inflation gdp growth productivity change, nominal wage rises, whole economy whole economy real wage rises, whole economy open unemployment source : statistics sweden 3. open unemployment i different counties share of the labour force i each county respectively norrbottens gavleborgs skane orebro dalarnas vastmanlands varmlands sodermanlands blekinge vasternorrlands gotlands ostergotlands kalmar vastra gotalands hallands stockholms vasterbottens uppsala kronobergs jonkopings source : statistics sweden 4. proportion of open unemployed members of different unemployment benefit funds per cent of members hotel and restaurant workers building workers commercial employees industrial workers transport workers seko htf sif m unicipal workers local government officers graduates teachers government officers note. htf = the salaried employees ’ union. sif = the swedish union of clerical and technical employees in industry. seko = the union of service and communication employees. the building workers ’ funds consist of the building union ’ s and the swedish painters ’ union ’ s unemployment benefit funds. the industrial workers ’ funds consist of the unemployment benefit funds of the swedish metal workers ’ union, the swedish forest and wood trade union, the swedish food workers ’ union, the swedish paper workers ’ union, the swedish graphic workers ’ union and the industrial workers ’ union. the number of members in the unemployment benefit funds included in the chart comprised in 2003 around 88 per cent of the total number of unemployment benefit fund members in sweden. source : national labour market board.

information can crowd out private information. by ensuring that all agents overweight public information in their decisions, that means that other agents observing those decisions can infer less from them about the private information others have that motivated them. in the limit, if everyone took decisions solely on the basis of public information, they could reveal nothing about some private information they may also have, but did not act on. dale, orphanides and osterholm ( 2008 ) illustrate how welfare can fall if the private sector overestimates the accuracy of central bank forecasts. target to meet, set by government. inflation, as measured by the change in the consumer price index, should be 2 % at all times. but because interest rates take time to affect inflation, forecasts of inflation are integral to setting monetary policy. and because the mpc ’ s forecast is a probability distribution, rather than a single number, it is communicated in a fan chart. that depicts the mpc ’ s view of the probability of a range of different outcomes. each forecast covers a three year forecast period, because that is the horizon over which we expect the current stance of monetary policy to have the majority of its effect. here is an example fan chart ( see http : / / www. bankofengland. co. uk / publications / speeches / 2010 / speech432. pps ). it shows the inflation projection published in the february 2010 inflation report. each fan chart is conditioned on a particular path for the bank ’ s policy instruments. this one assumes that bank rate will follow the path expected by financial markets. the mpc also publishes another fan chart conditional on a different policy assumption, namely that bank rate remains at its current level throughout the forecast. we believe these charts have been helpful in communicating the big picture that the mpc needs to get across. the fan chart works by showing what the committee believes would happen to inflation if today ’ s economic circumstances were repeated on 100 occasions. in any given quarter in the future, cpi should lie somewhere in the red shaded area on 90 out of 100 occasions : 10 times in the darkest red band, and 10 times in each pair of lighter red bands. the darker shades refer to increasing probability densities at any given point. of the remaining 10 out of every 100 occasions inflation is expected to lie outside the shaded part of the fan altogether. but the distribution of these tail events is not explicitly specified, as to do so would require a spurious degree of precision on