are worth repeating. there are above all two aspects that i think make it important to maintain confidence in the inflation target of 2 per cent and which indicate that the target should not be lower. one is that, when average inflation is too low, it becomes more difficult for wage formation to distribute the resources in the economy efficiently. the reason is that it has proved difficult in practice to lower nominal wages. if inflation is low and nominal wages cannot be lowered, then it becomes difficult to adjust real wages between different professions, companies and sectors. this can ultimately lead to both higher unemployment and poorer productivity growth in the economy. a moderate level of inflation mitigates these problems. it functions as grease in the wheels of the economic machinery. another advantage with an inflation target of 2 per cent, which has come to the fore in recent years, is that it creates at least some scope for lowering the policy rate before it reaches its lower bound. if the inflation target, and hence average 4 inflation, were to be lower, then the nominal rate would also on average be lower. this would be particularly problematic in a world where real interest rates are very low, as is currently the case. the scope for lowering the rate before it reaches its lower bound would then be more limited than it is today, which would make it more difficult to counteract future recessions. therefore, if one does not like negative interest rates, one should not advocate a lower inflation target, as that would imply that the policy rate would have to be negative for longer periods. in the international debate, moreover, there are several economists who think that not even an inflation target of 2 per cent provides sufficient scope to conduct as expansive a monetary policy as is sometimes necessary. so there are sound economic arguments for an inflation target that is not lower than 2 per cent. to sum up, it is these considerations i have in my mind when i talk about the importance of keeping our eye on the ball. basically, it is a question of constantly being very clear about the guiding role of the inflation target in the design of monetary policy. the lower bound of the repo rate is less than zero regarding negative interest rates, i presented my own view on the matter in a speech around this time last year. 6 i think that the difficulties with negative rates are not so much a question of purely economic aspects, but rather of what is feasible according to social conventions and possible to create understanding for. for example, the biggest problem is probably not the one

a credible inflation target stabilises wage formation, both when inflation is unexpectedly high and when it is unexpectedly low. second, it is very unclear what might replace the inflation target as the anchor for prices and wages in the economy. one possibility is of course for sweden to revert to a fixed exchange rate. this is something i will return to shortly. my interpretation, however, is that those who think the inflation target has run its course for wage formation are not predominantly advocating a return to a fixed exchange rate. instead, they seem to be relying on the wage formation reforms themselves being sufficient. according to these reforms, which are collectively known as the industrial agreement, industry has, for over twenty years, been setting the benchmark for wage negotiations and is thereby steering wage growth in the entire economy. in this way, international competitiveness is taken into account when swedish wages are set. the industrial agreement has definitely fulfilled an important function as regards bringing about more controlled wage formation with restrained wage increases. but from a broader economic perspective, it is difficult to see how an agreement between labour market parties could constitute a sufficiently stable anchor for prices and wages in the entire economy, in order to be able to replace the inflation target. as far as i am aware, sweden would then be the first country in the world to abandon inflation targeting in order to rely on such a system instead. the ways of trying to provide an economy with a nominal anchor that are currently employed are either directly via an inflation target or indirectly via a fixed exchange rate. important to discuss the conditions for wage formation in recent years, a number of challenges with regard to the system whereby industry sets the benchmark for wage negotiations in the rest of the economy are being increasingly discussed. one aspect addressed is that this standardisation makes it more difficult to change relative wages, which might be called for from the perspective of fairness and distribution. for example, it can be an obstacle to reducing wage gaps between women and men. but the problem has also been highlighted from a macroeconomic perspective. if relative wages are not flexible enough, it could counteract an economically effective distribution of the labour force among professions and sectors. this could in turn create imbalances on the labour market. many analysts argue that, instead of the most important aim of 10 wage formation being to safeguard the international competitiveness of industry, it should be to achieve balance in the labour market as a whole. 10 another important aspect highlighted in the discussion is the extent to which this wage standard