downturn with repercussions for the entire global economy. steering interest rates were cut all around the world, including in sweden. nevertheless, inflation continued to rise. a cold winter in europe, problems with the swedish apple harvest and poor fishing catches led to rising prices on fruit, vegetables and fish during the autumn. it is obviously easy to get caught up with details and fail to see the underlying changes. however, we could see even more clearly that the rise in inflation was not merely due to transitory factors, but entailed a broad rise primarily in domestic prices. this could be connected with the fact that secondary effects from the higher energy and food prices had made a greater impact in the consumer channel. another important factor was that wage growth, despite the weaker development in demand, became even more problematic. within many industries, for instance, construction, retail trade, banking and insurance, as well as the public sector, wages rose considerably during 2001. at the end of 2001 / beginning of 2002, there were signals from confidence indicators that economic activity might have reached its lowest level in the usa and also sweden and some optimism regarding the future began to spread. the effects of the terrorist attacks appear to have been limited, although some sectors were hit very hard. to sum up, we can conclude with the aid of this slide ( oh 1 the riksbank ’ s forecasts for gdp 1999 - 2003 ) that the year 2001 entailed constant downward adjustments in the growth forecasts. at the same time, we can conclude the opposite with regard to the inflation forecasts ( oh 2 inflation forecasts 1998 - 2002 ), which we have been forced to revise upwards again and again. if we are right that a recovery is now beginning both in sweden and abroad, we can conclude that the economic downturn was one of the mildest of the post - war period, partly as a result of resolute stabilisation policy. however, the slowdown in sweden and the rest of the world during 2001 was unexpectedly severe in relation to the forecasts made in 2000. the fact that forecasters miss turning points in the economic cycle is not unique to this particular downturn, but quite a common phenomenon. i will return to the current situation, but first a look back in time. historical patterns are repeated is it possible to learn lessons from history? both yes and no. if one studies economic slowdowns over the past three decades, one can see that they differ considerably both

rising because the increase in global demand and growth is higher than was assumed, or is the political uncertainty in the middle east the most important factor? what is the resource situation within the economy? a price rise that occurs when resource utilisation is on its way down can lead to a rapid and profound decline. rising oil prices in a situation with strained resources can lead to a spread effect, with a general rise in prices within the economy. we can thus have a higher inflation rate at the same time as this can have a subduing effect on production and employment. if monetary policy were to be aimed in every situation at using interest rate hikes to eliminate the effects of oil price rises on inflation, it could lead to a deterioration in production and employment. if transitory effects on inflation are expected to abate without spreading to other prices or affecting inflation expectations, there may be good reason to leave the repo rate unchanged. a gradual adaptation of monetary policy directed at achieving the inflation target a couple of years ahead allows us to take into account employment and growth. that is why the riksbank ’ s policy is based on achieving its inflation target of 2 per cent one to two years ahead. acts of terrorism, wars and natural disasters increase uncertainty it is important to observe that knowledge of the effects of monetary policy is not complete. the purpose of the deviation interval is to make clear that deviations are probable, while our ambition is to try to limit them. in practice, monetary policy is governed in such a way that we make forecasts for inflation one to two years ahead. if the forecasts for this time horizon are higher than the inflation target we raise the repo rate, and if they are lower, we cut the rate. so what do we think we can affect through monetary policy? to put it simply, the repo rate affects other swedish market rates ( the interest rate channel ), the banks ’ lending to the general public ( the bank channel ) as well as other asset prices, such as share prices, and the exchange rate ( the exchange rate channel ). the size of the impact made by a change in the interest rate on households ’ mortgages or on share prices varies over time. monetary policy can also have an effect via households ’ and companies ’ expectations of the future. an inflation target of 2 per cent shall act as a kind of nominal anchor for expectations regarding the future development of inflation and thereby affect pricing, rates and wage - setting. when it comes to