inflationary tendencies. it is sometimes argued, for example, that one of the forces behind today ’ s improved economic performance in the united states is the rapid advances in computer technology and telecommunications ; this has led to more efficient processes for production and distribution and thereby paved the way for higher productivity growth. productivity in the united states does appear to have been rising more strongly. some observers consider that the potential annual growth rate may have moved up from 2 % to up to 3 %, perhaps even more. in sweden, too, there are many indications that the growth of labour productivity in the 1990s has been higher than in the 1980s. the upward shift may perhaps amount to half of a percentage point. it is this that has prompted the common, but not entirely certain, estimate that the swedish economy can now sustain an annual growth rate between 2 and 2. 5 %. but swedish statistics do not yet confirm that productivity and thereby potential growth have increased fairly appreciably, as has been the case in the united states. in time, however, the pace of developments in computerisation and telecommunications will probably also have a major impact on production and distribution systems in sweden. sweden is well to the fore in the use of the internet. still, it is not yet clear when these developments will exert a more general effect on growth. a point worth noting is that the upward shift in us productivity growth occurred fairly late in the business cycle. the swedish economy has not reached that stage. over a normal cycle, without any impulses from an improvement in potential growth, statistics show that productivity gains tend to slacken towards the end of the upward phase. that was the case in sweden, for example, in the late 1980s. now that low inflation has been established, it is conceivable that the swedish economy functions differently, so that productivity growth might also be better here in the coming years. the example of the united kingdom, however, suggests otherwise. activity there has been relatively stronger than in most other european countries but clear signs of better productivity growth are still not discernible. if there is no direct evidence that it is appreciably higher productivity that lies behind the decreased inflation propensity in sweden in the 1990 ’ s, where should we look for an explanation? i want to discuss two possibilities : the inflation process as such and the level of unutilised resources. at the same time i shall consider their significance for future inflation. has the inflation process changed? perhaps the most

of events has to be prevented by the riksbank, which the riksdag ( sweden ’ s parliament ) has made accountable for maintaining price stability. so sooner or later the level of the repo rate will have to be normalised in order to counter an acceleration of inflation in an upward cyclical phase. this is something that the riksbank is discussing, as was evident from the published minute of the executive board meeting on 12 august. in the present circumstances what we have to do is decide when – not whether – the time has come to initiate the shift towards a less expansionary monetary stance. as regards the timing of this type of monetary policy measure, it is generally true to say that if the riksbank waits too long before making a necessary repo rate adjustment, when the increase does come it may have to be larger than otherwise in order to arrest the overheating and inflationary tendencies. that could introduce undue instability into output and employment. a higher repo rate does not necessarily impede the continuation of a favourable economic trend ; it may even be required for a good and sustained development of employment and growth, as is illustrated by how the federal reserve has acted in the united states. a judicious series of increases in the federal funds rate seems to have contributed to the longest post - war period of growth in the united states. since it was raised by degrees from 3 % from 1994 to 1995, the american instrumental rate has moved between 4. 5 and 6 %. having said this, it must be realised that there is no simple answer to the question of what constitutes a judicious timing or magnitude of a repo rate increase. one alternative, of course, is to act early and make a small increase even though indications of growing inflationary pressure have not actually shown up. such a line can be seen as insuring against the adverse consequences an acceleration of inflation might entail. in my opinion, however, there are other aspects that it is important to analyse and incorporate in the assessment. lower inflation propensity? one reason for greater circumspection today in monetary policy is that the trade - off between growth and inflation may have changed. during the 1990s the paths of inflation and real economic activity in many countries, sweden included, have not followed the pattern that their earlier relationship suggests. this has started a discussion, in the united states and elsewhere, of whether macroeconomic structures have changed so that higher growth is now feasible without