deal of what is happening in a dynamic and complex environment. events in the autumn of 1998 and the problems at that time in connection with the american hedge fund ltcm are a telling example of the limitations of risk models, or perhaps rather of errors in the ways they are used. firstly, there was the evident difficulty in separating the management of market risks from credit risks. as a result of major shifts in market prices, the credit risks, which had seemed to be negligible initially, suddenly became considerable. loans are often provided against collateral in the form of securities ; the securities are not pledged for their full value, which leaves a margin for unforeseen events. this buffer, however, is often relatively small. additional collateral, it is said, can always be called for if market prices make this necessary. alternatively, the existing collateral can be realised. there has been a tendency to disregard both the potential credit risk in arrangements of this type and the possible refinancing and liquidity risks. what happened with ltcm in the autumn of 1998 showed that market value can deteriorate so rapidly that there is not enough time for calling in and receiving additional collateral. neither could the securities be sold without further ado in order to realise the existing collateral. under these circumstances, the market risk was transformed into credit risk. in the case of ltcm, the banks had made a proper credit assessment and scrutiny of their counterparties. the end result, as we know, was that the banks were obliged to take over the fund and contribute additional capital. secondly, we were reminded that value - at - risk and similar assessments must be used prudently. looking back, it can be said that too much faith was put in estimates that had been made while the sun was shining and which proved less watertight when it suddenly started to rain. the parameters on which risk calculations are based - standard deviations and correlations, for example - are usually estimated on the market ’ s historical performance together with some simple assumption - for instance a normal distribution - about the underlying pattern of probabilities. shocks of the kind that occurred in the autumn of 1998 pulverise the conditions behind such calculations and make value - at - risk less meaningful as an indicator of the risks that actually apply. as with any innovative activity, there is an element of trial and error here that we must aim to tackle by developing new methods at the same time as we try to learn from mistakes. the hard - earned

. as i have already mentioned, this would indicate lower resource utilisation. but when we take into account the stronger labour market development, our conclusion in our most recent monetary policy update is that resource utilisation is slightly higher than it was in february. but it is still low and will remain so for a large part of the forecast period. when we cut the repo rate to its current extremely low level in july last year, the situation on the financial markets was still critical, the economic cycle was in a much gloomier phase than now and the forecasts were much more pessimistic. during the autumn the positive signs increased and the forecasts were gradually revised up after numerous downward adjustments. the riksbank had offered loans at fixed - interest rates with a one - year maturity in july, september and october. the purpose of these loans was to bring down general interest rates in a situation where the repo rate was assessed as having come down to what was in practice its lowest possible level. the fact that new loans were not offered in december was a first sign that economic activity was beginning to stabilise and that this type of unconventional measure was no longer necessary. we are assuming in our most recent forecast that gdp in sweden will increase by 2. 2 per cent this year and by 3. 7 per cent next year. these are upward revisions of around one percentage point and half a percentage point respectively, compared with july last year. they are not very large changes in growth, but they are changes in the right direction and a sign that economic activity is on firmer ground. the largest change in our forecasts concerns the labour market, as i mentioned earlier. in july we were assuming that employment would fall by just over 3 per cent a year and would not begin to rise until 2011. now we have already seen an upturn in employment and we are instead forecasting a marginal increase in the number of persons employed. in july we were assuming that unemployment would peak at 11 per cent in 2011. following the large fall in production this appeared to be a reasonable forecast in line with historical patterns, and it was also shared by most other analysts. however, developments are now rather different and our current forecast is that the current unemployment level of 9 per cent is a peak and that unemployment will be 8 per cent at the end of our forecast period. how has the stronger labour market affected the interest rate decisions? firstly, it should be said that it is not possible to point