by cutting costs. this involves control of wage growth and the search for productivity improvements. this has been complemented by greater contestability in the labour market due to both greater migration and the potential for out - sourcing and relocation of production should wage demands become excessive. my view therefore is that the disinflationary pressure from globalisation may well have been more substantial than the direct estimates suggest, and this helps to explain why inflation has fallen throughout the world over the last 15 years from 30 % in the early 1990s to about 4 % in 2003. 6 this the weight of manufacturing in uk gross value added was 14. 7 % in 2003. ( united kingdom economic accounts, 2006q1 ). this is discussed in detail by my former mpc colleague, stephen nickell in ‘ why has inflation been so low since 1999? ’ estimates from kenneth rogoff, ‘ globalization and global disinflation ’, paper prepared for the federal reserve bank of kansas city conference on ‘ monetary policy and uncertainty : adapting to a changing economy ’ jackson hole, wy, august decline has been particularly marked in africa, latin america and the transition economies but is also significant in the uk and other developed countries. none of this makes monetary policy any less important. ultimately inflation in the uk is a product of our monetary policy. inflation would certainly reappear if we relaxed. but the disinflationary pressures from the far east and elsewhere have made our job easier. in the uk, interest rates are set to deliver the inflation target. if there is disinflationary pressure from the rest of the world then that allows us to set lower interest rates ( and accommodate a higher rate of price increases in services ) than would otherwise have been the case. thus the consequence is lower interest rates as well as low inflation. prospects for uk inflation that leaves the question whether that benign trend is likely to continue in the future. over the past year, the downward trend in the prices of imported goods has stopped and import prices have started to rise, even after excluding oil and erratic items ( chart 4 ). the mpc ’ s current view, as expressed in the latest inflation report, is that import price inflation will moderate over the coming period, but that it will not prove as much of a downward force on inflation as in the late 1990s and early 2000s. we have, for example, seen signs of costs rising in china and the far east. looking further ahead, there must be a risk

this is important not least for the external evaluation of monetary policy in sweden now being carried out on behalf of the riksdag committee on finance. there are many interesting question that are worth raising. one example that is of immediate interest in the swedish debate is the question of whether monetary policy should have an explicit target for employment in addition to the target for inflation. this is one question that will be taken up in the external evaluation. today i intend to take up a couple of questions that i consider relevant to both the debate in sweden and the international debate. the first question is what role monetary policy should play with regard to promoting financial stability. this is a question that is still raised as one of the most important ones in the international discussions on possible changes in the inflationtargeting framework, although in many countries this has been overshadowed by the recent low inflation figures. a second question that, for natural reasons, is always topical when discussing whether the inflation - targeting policy needs to be modified is whether the level of the central banks ’ current inflation targets – usually around 2 per cent – needs to be changed. this is also something that has been discussed quite a lot by academics and in various policy forums since the financial crisis. internationally, the discussions have focused bis central bankers ’ speeches on the question of whether the target should be raised, while in sweden the focus has instead been on whether the target has been set too high. i intend to address the arguments for both points of view and to give my own views on the subject. should monetary policy take financial imbalances into account? but let me begin with the question of monetary policy and financial stability. one lesson from the financial crisis is that price stability is not sufficient to ensure financial stability in the economy. more specifically, the origin of the financial crisis showed that even in a relatively calm economic environment it is possible for financial imbalances and risks to build up and lead to disruptions spreading throughout the financial system and causing substantial costs to society. after the financial crisis there has been intensive work around the world on producing tools that can be used to prevent these systemic risks from arising. and a largely new policy area has taken shape ; macroprudential policy, which is responsible for these tools. in principle everyone agrees that this policy area is needed and it has begun to be implemented around the world with slightly different institutional set - ups. in sweden, of course, finansinspektionen ( the swedish financial supervisory authority ) has been