growth gradually returns to the normal trend level. companies respond to the rising demand by increasing production and investment, which in turn leads to unemployment falling and to consumption accelerating again. however, i would like to repeat that an economic cycle does not always follow this average example. it is often the case that one of the components does not show its usual pattern and sometimes the economy “ settles ” for an unusually long time in one phase of the cycle. a few years ago, for instance, there was much talk of “ jobless growth ” when employment failed to accelerate despite a high growth rate. in addition, the length of an economic cycle varies considerably. it can be anything from three to ten years 11, and the turning points therefore become difficult to predict. economic downturns, that is, the period when the economy moves from a peak to a trough, are usually shorter. the normal condition for the economy is thus a growth phase. 12 the current economic cycle after this review of common cyclical patterns i shall take up some specific features that characterise the current downturn. following the recent turbulence in the financial markets it can easily be forgotten that there are also elements of a “ normal ” slowdown in economic activity on this occasion, too. even before the financial crisis took a serious hold in summer 2007 it was possible to see in the riksbank ’ s and other analysts ’ forecasts that a slowdown in economic activity was expected both in sweden and abroad. since then the world economy has been exposed to major shocks that have led the riksbank, like other forecasters, to revise down the growth forecasts for the coming years. the financial crisis has proved to be more profound, more prolonged and to have more ramifications than one might initially have expected. in the most recent phase of the crisis the the riksbank ’ s own calculations. see also the box “ future labour market developments – experiences in other countries and the significance of growth composition ” in inflation report 2005 : 2. the longest expansion phase the nber has noted for the united states was 10 years, between march 1991 and march 2001. nber. unease has also more tangibly spread to european banks and government agencies in several countries have felt obliged to intervene. we have tried to take into account the effects of the financial crisis in our forecasts. but it is of course difficult to know to what extent we could have captured all the effects the crisis may have had so far on the real economy.

? monetary policy could previously be described with a simple policy rule. if the forecast for inflation was below two per cent, the repo rate would normally be cut, and it was above two per cent the interest rate would be raised. if the forecast was very close to two per cent the repo rate would remain unchanged. of course, this rule could not capture all of the nuances in the monetary policy discussion, but it provided a rough explanation of the monetary policy decisions. now we no longer use this simple policy rule. according to our new way of thinking, if the inflation forecast is close to two per cent, the repo rate should normally develop in line with market expectations. this could mean that the repo rate should be raised or lowered in a number of stages over the coming two - year period. the new way of thinking thus means that, unlike before, the monetary policy discussion is now based on an interest rate path that stretches across the entire forecast period. this method of working enables clearer communication regarding future policy. although it cannot, of course, be regarded as a commitment from the riksbank that the repo rate actually will follow a particular path. each time we make a decision, we take a stance on the repo rate path, on the basis of the information available at the time. our considerations can and should be altered if the economy develops in a different direction than we had expected. essentially, this is the same monetary policy strategy as before. the goal for monetary policy still concerns inflation and the ambition remains the same ; that is, a desire to ensure that inflation is low and stable a few years ahead, while giving some consideration to the stability of the real economy. this is characteristic of what is known as flexible inflation targeting, which as far as i know, is conducted by all central banks that have inflation targets. in this context i would like to take up a current issue that has recently featured in the monetary policy debate. it has been claimed that the riksbank places too much focus on asset prices and too little focus on inflationary pressures from the labour market. my response is that the basis for the monetary policy decisions includes analyses of demand and production, as well as the labour market and inflation. it is necessary to analyse asset prices and credit volumes as these affect and are affected by economic activity and inflation. wage formation also plays a central role in the development of inflation. over the past ten to fifteen years, fiscal and monetary policy has provided