target often has a counter - cyclical function. this means that it has a stimulating effect on the economy during a downturn in economic activity, as the inflation rate is normally low then, and vice versa. that, in a few words, is the philosophy behind the riksbank ’ s inflation target. the sveriges riksbank act also establishes that the riksbank shall be autonomous, which means that we six members of the executive board, who make the decisions on the steering interest rates, may not seek or receive instructions from the government or parliament. the idea is that we are thus free to maintain price stability and will not be tempted to concentrate on short - term considerations when making our decisions. it may appear that this target forces the riksbank to give lower priority to the development of the real economy. we only have a target for monetary policy. however, the preparatory work on the riksbank act stated that we shall “ without setting aside the price stability target, support the objectives of the general economic policy with the aim of achieving sustainable growth and a high level of employment ”. in any event, the assessments of the future path of the real economy play an important role in our decisions, as developments in economic activity are an important component in determining inflation. however, what is even more important is that there is no contradiction between good growth and price stability in the long term, quite the contrary. if we look at developments during the 1990s, growth after 1992 was on average 3. 0 per cent a year, despite the fact that inflation had been below the target level for several years. unemployment had at the same time declined from 9 per cent to around 4 per cent. this can be compared with the 1970s and 1980s, when inflation was approximately 8 per cent and growth was on average 2 per cent. contributing to this positive development was the fact that there was good access to free resources in the economy after the crisis years at the beginning of the 1990s. an important part of the riksbank ’ s monetary policy strategy is clarity and openness with regard to the bases for monetary policy decisions. the purpose of this is to create support for the price stability target and understanding of what governs the interest rate decisions among the general public. this is also the reason why we executive board members often travel round making speeches. openness and clarity on our part can contribute to stabilising inflation expectations in society and reduce the risk of unnecessary tension on the financial markets. as monetary policy

that economic activity is improving both in the usa and europe. one factor that often contributes to turnarounds in economic activity is companies ’ stockbuilding. when stocks are well - filled and sales decline, companies cut back on production so that it becomes even lower than demand. this destocking then pushes economic activity down to begin with. when the cutback in stocks gradually reaches an end, companies can increase production again without waiting for demand to increase. this gives increased strength to the upturn in activity. it is probable that this is the case right now ; according to several indicators production has begun to increase and a certain amount of optimism is beginning to spread. the total economic policy is expansionary in many countries, which provides additional fuel to the sequence of events. the economic situation in the usa and europe this means that demand on sweden ’ s most important export markets is increasing. the turnaround has been particularly noticeable in the usa. there, both residential construction and household demand have been upheld during the economic slowdown by stimulation policy. in addition, strong productivity within us industry has contributed to improved profit margins. however, the upturn in the usa is expected to be fairly modest, which is mainly because households are expected to increase their low level of savings. ( diagram 1 - savings in the usa ). there is a large savings imbalance in the us economy. sooner or later an adjustment is expected. the weakening of the dollar that we have seen recently may be an indication that the adjustment process has begun. the deficit on the current account amounted to 3. 9 per cent last year. on top of this, households ’ wealth in the form of shares is expected to continue to develop weakly and the rapid price increases on property are expected to subside. the us labour market does not appear likely to improve before the end of the year, which will give a subdued development in real wages. ( diagram 2 - unemployment in the usa, the euro area, germany and france ). at the same time, there is a risk that imbalances in savings in the usa will be adjusted more rapidly and more forcefully with the result that the us economy may lose speed. if the american household sector were to increase its savings and thereby reduce the debt burden more rapidly than is currently predicted, it could lead to a poorer development in consumption than expected and a stagnating economy. the factors that could trigger such a sequence of events include, for instance, us share prices continuing to fall or a decline