bank has been formally confirmed, accompanied by a clear mandate. the floating exchange rate regime and the explicit target for price stability have worked well. several segments of the swedish economy have been deregulated, though less has been done in this way in the labour market than in markets for goods and services. but the labour market organisations have been working on their own account to improve the system for wage formation. as a result of all this, the swedish economy is doing better than we have seen for a long time. the economic upswing has now continued for more than six years, during which annual gdp growth has averaged around 3 %. and notwithstanding the strong growth of demand, inflation has been lower than one would expect from earlier relationships. everything suggests, moreover, that the economy will continue to impress. last year, gdp growth was 3. 8 % and the increase in employment was the highest in the past twenty - five years. another indication of the good circle in which the swedish economy is developing at present is that forward - looking gdp assessments have also been revised upwards, whereas forecasts of inflation have not been adjusted upwards to the same degree. financial market pricing is also a tribute to the present credibility of swedish economic policy. who would have believed a decade ago that the swedish economy would achieve such a favourable path? the successful combination of relatively high gdp growth and low inflation can in principle be attributed to a number of factors. one may be the plentiful supply of unutilised resources after the crisis in the early 1990s. a change in pricing behaviour may have contributed once the rate of inflation had been brought down to a low and stable level. increased competition in connection with, for example, deregulations, globalisation and it commerce may also have played a part. but it may also have to do as well with an upward shift in trend productivity, so that more goods and services can be produced without an increase in prices, in other words, a higher rate of potential growth. it can be argued that all these factors have in fact contributed to the favourable development. when the upswing started there were plenty of unutilised resources. it is highly likely that pricing behaviour in a low inflation regime differs from that when inflation is high. another circumstance worth mentioning is that both external and domestic competitive pressure have increased and led in many cases to downward price adjustments or just a slow increase. the most recent figures for inflation are one of several illustrations of this phenomenon. while this is strictly speaking

the financial sector was deregulated in the mid - 1980s, the problems with stabilisation became even more difficult to manage. meanwhile, the structural weaknesses were being concealed by an overheated economy. activity looked strong but the potential growth rate in the swedish economy had weakened some time before. as the 1980s drew to a close, however, there was a growing awareness that something would have to be done. the structural problems, high inflation and speculative behaviour all warranted a realignment of economic policy. in time, the necessity of a change was supported more and more widely. the tax system was reformed and so were certain segments of the transfers system. sweden also applied for membership of the european union. our currency was pegged to the ecu and during the wave of international exchange rate speculation in the autumn of 1992 the krona was defended to the bitter end in order to demonstrate the determination to re - establish a credible low inflation regime. the economic policy realignment coincided, however, with the setback that followed the bursting of the bubble from the late - 1980s and the swedish economy descended into a profound crisis. whether this dramatic downturn could have been managed somewhat differently is a question that will no doubt be analysed in the future. some things could certainly have been done differently in the late 1980s, as well as in the throes of the crisis. however, i believe that the main lesson to draw is that the roots of the deep crisis ran quite a long way back. a realignment of economic policy was essential. the fact that there had been no credible stability oriented policy regime in sweden for almost twenty years had had far - reaching repercussions that ultimately affected our material prosperity. it was high time to establish a new anchor for monetary and exchange rate policy, wage formation and economic policy in general. structural reforms were also needed to correct earlier structural mistakes and restore our economic vitality. whether the measures that have been taken up to the present are sufficient is a debatable issue ; but the point i want to make is that a change of direction and some political action had already been initiated in the 1980s. the work has continued since then and been undertaken by governments of diverse political hues and personalities. in other words, something happened to swedish economic policy in a wide sense in the late 1980s. when the immediate crisis had been managed in the early 1990s it was clear that the weak government finances would have to be tackled. moreover, the independent status of our central