which large parts can be described as being in balance. central government debt has fallen from 80 % of gdp in 1995 to around 70 % in 1999, foreign debt has fallen from a maximum of 40 % of gdp in 1993 to only just over 20 % of gdp in 1999. the long - term inflation expectations have also been stable around the 2 % target for inflation for some time. it is true that unemployment continues to be high but it is falling. this is the most promising development for 30 years : we have strong growth at the same time as we have balance or large surpluses in central government finances and foreign trade. the challenge for monetary policy is not to dampen demand unnecessarily but neither should demand be allowed to increase more than is compatible with the inflation target. in the long - term, monetary policy has, of course, no direct impact on the rate of growth although during a shorter period, demand and growth are influenced by the interest rate set by the riksbank. if, for instance, monetary policy is made more stringent too late, there is a risk that inflation expectations will rise and gain a hold. to restore inflation to the target, a longer period of stringent monetary policy will then be required with weaker demand as a result. then investment will also be throttled and capacity growth braked. the inflation target has not only a value per se but is also first and foremost a means for creating the prerequisites for stable, sustainable growth. the best contribution the riksbank can make is to maintain the inflation target but there is no simple rule of action as to how monetary policy is to be conducted. according to the riksbank act, the overall objective for the activities of the riksbank is to maintain stable prices. however, according to the law, the riksbank shall also support the objectives of general economic policy without setting aside the inflation target, in order to maintain sustainable growth and high employment. as the swedish economy is approaching balance in many respects and the long - term inflation expectations accord with the target, the conditions for carrying out monetary policy are more favourable in many ways than before. this does not prevent there being many components of uncertainty now as well. major structural changes are taking place in the world economy to some extent driven on by information technology. deregulation, eu membership, and stiffer competition are other factors that can be assumed to have an effect on the economy ’ s mode of functioning, although it is difficult

our way into a development similar to the american. at the same time, there are similarities, both with regard to the reorientation of the macroeconomic policy and to the penetration of computers and information technology in swedish society. an important difference between usa and sweden is that use of resources in the american economy has been high for many years while the swedish economy was in a downturn for practically the whole of the 1990s. investment usually increases only after a long period of high capacity use. the focus on stable prices and budget consolidation also started later in sweden than in the usa. a very benevolent interpretation could be that we are moving in the same direction as the usa but with some time lag. the usa also waited for a long time for the productive effects of many computers introduced everywhere in the economy. the conclusion that can be drawn now is that it is anyway still not possible to base monetary policy on a real acceleration of potential growth. is consumption affected by increase in wealth? the strong increases in prices in the swedish stock market indicate that there are expectations among those who handle risk capital that profits will increase sharply particularly in swedish it - related companies. in order for such a development to be realised, it is reasonable to assume that investment must increase on a broad front. a risk with a strong increase in share prices before any visible signs of potential growth accelerating is if consumption is strongly stimulated by households who own shares increasing their wealth. an increase in demand that is not corresponded to by an increase in potential growth increases inflationary pressure that the riksbank must counteract by increasing interest rates. however, increased interest rates also subdue increased investment, which is unfortunate, as it would brake the growth of capacity. it has been difficult during earlier periods of large increases in share prices to prove that swedish households have really increased their consumption as a result of increased wealth. during recent years, however, the proportion of households owning shares has increased. when property prices increased sharply at the end of the 1980s, many households raised loans on their homes and used the money for consumption. a low housing production combined with growth that is strongly concentrated to the big city areas has contributed to housing prices again rapidly increasing in recent years. this development can also stimulate consumption with the risks that i have just mentioned. wage formation risks a further factor of uncertainty for assessment of inflationary pressure in the ongoing evaluation of monetary policy is wage formation. here it concerns the risk that the wage formation processes have not yet been tested in such a strong cyclic