of over 3 %. at the same time, the average rate of cpi inflation has been little more than 2 %. some observers consider that this performance represents a new economic era in which high economic growth and falling unemployment can be achieved without generating increased inflationary pressure. according to this view, potential output has risen in recent years, accompanied by a fall in equilibrium unemployment. explanations for this could be, for example, improved productivity as a result of new technology and increased international competition. an alternative explanation is that transitory factors, such as the loss of global demand in connection with the crisis in southeast asia, have caused prices to fall or remain unchanged. in sweden, too, economic growth since the mid - 1990s has been comparatively good without inflationary pressure giving cause for concern. the monetary stance has been adjusted accordingly and the repo rate is currently 2. 9 %. it is too early, however, to say whether or not this is a sign of some farreaching change in the swedish economy. the riksbank will have to take a close look at the incoming statistics and endeavour to arrive at a conclusion. conclusion there are many signs that the swedish economy is growing more rapidly. it is only now that we are beginning to see growth rates above 3 %. for the riksbank – as well as for the economy in general – it is important that this trend does not again land us in a situation where inflation is high and variable. provided the cards are played correctly, growth can be sustained and lead to a permanent increase in employment. this calls for an adjustment of demand to the economy ’ s productive capacity. it is important that structural measures which primarily improve the workings of the economy are implemented in good time. the good consumption trend can then be met by rising output and high growth can be maintained without this necessarily leading to unduly high inflation. as i have already made clear on several occasions, i consider that tax cuts, in tune with the established guidelines for budget policy, are motivated. the tax - to - gdp ratio has risen in recent years as a consequence of the growth of private consumption and rising wage bills ; today the ratio is above 50 %. the swedish economy would probably function better with lower taxes. the reforms that are needed in the tax system – as well as those i consider should occur in the labour market – can be arranged, however, in such a way that they promote the aims of stabilisation policy. tax cuts in sweden are probably needed that con

and approximately 7 per cent of gdp in 2011. however, it is still high in historical terms and in comparison with other countries. it is hard to see that there are any major advantages for the swedish households of a significant part of their incomes being used to fund investments abroad, which in reality is what this means. to me, this is another sign that demand is too low in sweden. low demand is restraining consumption so that saving is high, and is also restraining investment. my interpretation of developments regarding the labour market, inflation and the current account is thus that demand in the swedish economy has been far too low since sweden was hit by the fall in demand in the autumn of 2008. although both monetary policy and fiscal policy have been used to counteract the fall in demand, this has not compensated in full for weak economic development abroad and for the weakening optimism of the households and companies. the fact that unemployment was relatively high in sweden already prior to the financial crisis ( as can be seen in figure 2, unemployment has averaged just over 7 per cent since 1999 ) and that the current account surplus has been substantial since the second half of the 1990s, raises the question of whether aggregate demand has been weak in an even longer perspective. my colleague lars e. o. svensson has, for example, claimed that unemployment has been unnecessarily high since the mid - 1990s because monetary policy has not been used to a sufficient extent to counteract shocks that have pushed down inflation. 3 it is of course important to determine what the situation was with regard to resource utilisation before the financial crisis in order to be able to assess the level that unemployment should eventually fall to. but this is not the issue that i intend to focus on today : my focus see the paper “ the possible unemployment cost of average inflation below a credible target ” or the speech “ monetary policy and inflation : monetary policy is too tight ”, 16 january 2013. bis central bankers ’ speeches here is instead on the issue of how economic policy could be used more effectively to stabilise business cycle fluctuations in the future despite the risks to financial stability. limited stimulation from fiscal policy in contrast to the situation in many european countries and the united states, there was a significant surplus in public net lending in sweden when the financial crisis began. in the euro area and the united states, public net lending as a percentage of gdp had shown an average deficit of just under 2 per cent during the 10 years before the crisis. the corresponding figure for