placed to question than this one. the clear framework encompassing an inflation target, published forecasts and a specified target horizon has generally worked well as a guide for policy. there have been communication problems here and there, but it is not obvious that the situation would have been much better under a different regime. another benefit of a clear framework, which i think has received too little attention in academic circles, but which in my opinion has been important for the favourable outcome, is that it helps bolster both the internal work and the economic discussion. other considerations than those purely related to inflation have most likely been put to a more rigorous intellectual test than would otherwise have been the case, which i think has been useful. however, the fact that inflation targeting has worked well does not mean, of course, that all problems have been solved and that there are no more issues worth discussing ; if that were so, there would have been no reason to arrange this conference. by way of introduction, i intend to describe some swedish experiences of a problem area in inflation targeting that i see as one of the more significant, perhaps even the most significant - how to deal with the trade - off between stabilising inflation and stabilising the real economy. i will focus in this regard on two of the areas central to this conference how policy is implemented and communicated. the inflation - real economy trade - off flexible inflation targeting policy it is presumably safe to say that all inflation - targeting countries today conduct what lars svensson would call a flexible rather than a strict inflation targeting policy, even though the degree of flexibility probably varies somewhat from country to country. in other words, they are not, to use mervyn king ’ s well - known expression, “ inflation nutters ”, i. e. they do not focus only on stabilising inflation but also take account of real economic developments and possibly other factors too. however, the present degree of flexibility in inflation - targeting policies has probably not always been regarded as so obvious as it is today. at least as far as sweden is concerned, i think i am right in saying that it has been a gradual process that has brought us to where we are today. that is probably also true for many other inflation - targeting countries. immediately after the announcement of the inflation target in 1993, the riksbank tended to formulate policy as if the intention was to be anything but flexible. this may have been because the credibility problems in the 1970s and 1980s were considered damaging and were deemed

debate trade is crucial the first issue is about trade. the critics argue that the expansion of world trade to include more countries as well as additional goods and services leads to the poorest countries being marginalised — developing countries are unable to compete with the wealthy nations in this process. some consider it would be better for the poorest countries to close their borders and build up their own industries. they would then be in a stronger position when perhaps they are ultimately incorporated in the world economy. a similar policy was advocated by some in the 1960s and ’ 70s and it was implemented in various guises in many countries, for instance in latin america. but the subsequent course of events provides strong arguments against such an approach ; isolationism has not been a good way of generating prosperity. on the contrary, countries that have staked their future on trade and international commitments have managed considerably better both in terms of growth and in combating poverty. there are many instances of this in asia, for example. as is clear not least from sweden ’ s own history, foreign trade is more or less essential for economic development, particularly in the case of small countries. in the past two decades world trade has expanded at an average annual rate of 6 per cent, which is twice the rate of global economic growth in this period. outward - looking countries have tended to grow faster than those which have been more introvert. countries such as india, vietnam and uganda, where the economy has been opened to the rest of the world and trade barriers have been reduced, have been able to combine stronger economic growth with greater success in overcoming poverty. world bank calculations indicate that the potential benefits from the elimination of all the existing trade barriers amount to between usd 250 billion and 680 billion. approximately two - thirds of the total would accrue to the industrialised countries but for the poor countries the gains would be twice as large as all the assistance they are currently receiving. neither are the poor countries ’ difficulties in competing with the industrialised countries the primary problem. when borders are opened, companies tend to locate their activities where production costs are lowest ; this frequently means developing countries, which accordingly get additional jobs, rising production and increased tax revenues. to attract investment on a large scale, however, it is necessary to have a reasonably effective judiciary, an adequately skilled labour force and other facilities ; these are by no means always available and here it is the developing countries that need to act. it is on account of problems such as these that investment from the industrial