of communication. at the time of the second industrial revolution, however, when the conditions for production were changed again by the petrol engine and the electric motor, sweden was in a better position to reap the benefits. in that the social structure was more suited to adopting and utilising the new technology, the pace of modernisation was faster. production became increasingly efficient as the industrialised society took shape. electrification, motor vehicles and aviation all left their mark on developments in much of the 20th century. at the same time, it was probably not the new inventions as such that provided the conditions for the rapid economic growth in the 19th and 20th centuries. it was rather their economic applications and how they spread - thereby altering patterns of production and consumption - that determined the magnitude of their impact on long - term growth. bringing about such a development involves ensuring that it is supported by the ways in which various parts of our society function. economists talk of society ’ s institutions or a market economy ’ s infrastructure. this refers to everything from the structure of government and the degree of economic stability to how the judicial system functions, with ownership playing a major role, the quality of education and the structure of taxation. as i said, a major cause of sweden ’ s earlier difficulties in utilising steam - engines was that various social systems were not able to latch onto the new technology and use it productively. sweden simply lacked the conditions for this initially. a historical view of transformation and development one of several possible approaches to an analysis of economic developments connected with various industrial revolutions was put forward by the austrian economist joseph schumpeter in his theory of development clusters and long cycles. this approach has been developed in sweden by economists and economic historians such as erik dahmen, johan akerman, lars magnusson and lennart schon. changes in technology are often cited as a basic cause of the long cycles. technical innovations tend to be developed in clusters that play a central part in the transformation of manufacturing. these concepts are not all that easy to define but roughly speaking it is a matter of new technology leading to extensive changes in the business community, as well as in society in general. the economy is launched into a process of transformation — a sort of struggle between old and new. new products are introduced as well as new forms of production. patterns of consumption also change and so does the demand for education. growth shifts to other parts of the country. the new demand stimulates the growth of capital markets.

authority ) carries out very important work here in that they monitor developments in the banks and credit institutions and are prepared to take action if they consider it necessary. underlying inflation stable around target of 2 per cent the impact of monetary policy on households ’ living costs is something that creates large fluctuations in cpi inflation during the forecast period ( figure 5 ). the fact that the repo rate has been cut heavily over the past year has contributed to a rapid fall in cpi inflation, as changes in households ’ mortgage expenditure are included in this index. with effect from autumn 2010, however, the repo rate is expected to rise relatively quickly, which will correspondingly mean that cpi inflation will be close to 4 per cent at the beginning of 2012. on the other hand, one can use a measure of underlying inflation, the cpif, which excludes the direct effects of the repo rate on mortgage rates. measured in terms of the cpif, we expect inflation to be much more stable and to be close to 2 per cent for most of the forecast period. figure 5. inflation measured in terms of the cpi and the cpif, annual percentage change cpi cpif - 1 - 1 - 2 - 2 sources : statistics sweden and the riksbank there is still considerable uncertainty surrounding future developments ( figure 3 ). it is possible that the improved situation in the financial markets will contribute to a faster recovery in the world economy than we are expecting in the main scenario of the monetary policy report. on the other hand, the recovery may be slower than expected when the fiscal policy stimulation packages around the world are gradually phased out. there are many potential risks along the way. but our forecast is that if we hold the repo rate low up to autumn 2010 and then begin raising it, this together with other measures will contribute to a stable recovery and mean we attain the inflation target of 2 per cent. figure 6. gdp with uncertainty bands, annual percentage change, seasonally - adjusted data - 2 - 2 90 % - 4 - 4 75 % 50 % o utcome - 6 - 6 forecast - 8 - 8 sources : statistics sweden and the riksbank i and my colleagues on the executive board want the growth curve to look like a “ v ” when the economy recovers after the recession, as in the figure with our forecast for gdp growth, and not a “ w ” ( see figure 6 ). having said that, let me just briefly comment on my own view of monetary policy as expressed in the