occur temporarily because new production facilities are not always available just when they are needed to cope with increased demand. however, experience in the 1990s suggests that firms are more flexible than before, both in the utilisation of existing capital stocks and in the procurement of new technology, machinery and plant when demand rises. so, if anything, it is not the level of unutilised capital resources that is critical at present. instead it is probably the labour market that should be focused when analysing resource utilisation. another reason for doing so is that in a price analysis at macro level, the weightiest item in costs is wages : total wage costs are equivalent to over two - thirds of gdp. the level of unemployment, although it has been reduced, is still high, particularly compared with the post - war period up to the early 1990s. seen from that angle, some might say that the swedish economy has plenty of unutilised resources. experience from other european countries has taught us, however, that when an economy has been through a severe shock, as happened in the early 1990s, unemployment tends to stick at a high level, at least for a while. this structural or equilibrium unemployment cannot be reduced by means of expansionary economic policies. attempts to do so simply lead in the end to a higher inflation trend and probably an economy that functions less efficiently. this is because wage costs tend to adjust upwards as the expansionary policy acts on the economy and higher long - term inflation expectations are established. viewed in this way, unemployment could be divided into two components, structural and cyclical. if the level of structural unemployment could be identified with some precision, it would be easier to gauge how much room the swedish economy still has for expansion above its potential growth trend. as always when one turns from theory to practical policy, things immediately become much more difficult. you have to make do with estimates, which in the nature of things are uncertain and therefore have to be interpreted with caution. still, the available estimates do suggest that in sweden the equilibrium level of unemployment rose in the early 1990s and is somewhere in the interval 4. 5 to 7. 5 %, expressed in terms of registered unemployment. 1 the oecd also concludes that the level has increased markedly in the 1990s and judges that in sweden equilibrium unemployment is around 6 %. 2 not everyone agrees, however, that equilibrium unemployment is markedly higher than before. 3 but even though we cannot be certain about its exact level, an increase is

to significant falls in demand and to lower inflation further ahead. • there are both cyclical and structural factors which could motivate high growth figures for loans and house prices in sweden over a period of time. however, when the rate of increase remains at a high level, my concern increases that imbalances are being built up, which may later on check demand and inflation. this risk has been taken into account in the monetary policy decisions in recent years. the costs of increasing interest rates at a slightly faster rate than is motivated by the inflation forecasts made by traditional means must also be considered. my opinion is that when gdp growth has been strong, the risks in the housing and credit markets have carried greater weight in the decisions, and vice versa when the economy has been weaker. inflation is low and stable … let me begin by reminding you of why we have our current framework. the attempts during the 1970s and 1980s to keep employment up by means of a very active stabilisation policy led to sharply rising central government debts and high inflation. this laid the foundation for the current broad agreement that economic policy should not attempt to fine tune demand in the economy and that price stability should be the long - term objective of monetary policy. price stability creates favourable conditions for households ’ and companies ’ decisions. it contributes to channelling savings to economically profitable investments, which benefits growth in the long term. in sweden, as in the rest of the world, the rate of increase in consumer prices has been low for the past ten years, and inflation expectations have stabilised around 2 per cent in many countries. thus, the price stability policy has in general been successful. in many countries this is due not only to monetary policy, but also to fiscal policy. a common fiscal framework within the eu, and in sweden ’ s case supplemented by a clearer national fiscal framework, have contributed to more orderly public finances. in sweden this has led to a gradual decline in the central government debt as a percentage of gdp. we can look back on a decade of gdp growth where the annual average has been a half a percentage point higher than during the 1970s and 1980s. inflation has been close to target, which can be compared with an average annual inflation rate of around 8 per cent during the two decades 1975 - 1995. … but asset prices are fluctuating considerably however, at the same time as inflation has been low and stable around the world since the mid - 1990s, there have been substantial fluctuations in asset prices. the fact