##tization requirements, a property tax, or restrictions on the tax deductibility of mortgage rates are examples of instruments that have much lower real costs and hence a considerable comparative advantage compared to the policy rate in affecting housing prices ( svensson 2010b ). flexible inflation targeting with mean square gaps ( msgs ) – another step towards increased transparency the adoption of numerical inflation targets has entailed great progress for practical monetary policy and made it possible to measure and evaluate the target fulfilment of monetary policy such considerations could include evidence of the “ risk - taking channel ” as in borio and zhu ( 2008 ). adrian and shin ( 2010a, b ) argue, in a model with such a risk - taking channel, that short interest - rate movements may have considerable effects on the leverage of securities broker - dealers in the market - based financial sector outside the commercial - banking sector. if we assume that the risk of a financial crisis increases as this leverage increases, and that policy rates affect leverage, then policy rates would affect the risk of a financial crisis ( woodford 2010b ). however, new regulation is likely to limit excess leverage and limit the magnitude of these affects. the size of the market - based financial sector may end up being smaller after the crisis. in europe, canada and the nordic countries, commercial banks dominate the financial sector. bis central bankers ’ speeches in a much more efficient manner than before. however, the fact that monetary policy is not just directed towards stabilising inflation, but also towards stabilising resource utilisation has, in the absence of quantitative measures of stability in these variables, made it difficult to measure and evaluate target fulfilment in this stability dimension. this makes it difficult to decide which policy - rate path best stabilizes both inflation and resource utilization. my suggestion is to use mean squared gaps for the inflation forecast and for the resourceutilization forecast as measures of the stability of inflation and resource utilization. 3 figure 1 provides an example, using graphs from norges bank ’ s inflation report of june 2005. figure 1 monetary policy with mean squared gaps ( norges bank, june 2005 ) in figure 1, the top left panel shows three alternative policy - rate paths, the main path chosen by norges bank at the time and two alternative paths, a lower and a higher path. the top right panel shows the corresponding forecast of inflation according to the index cpi - ate, the consumer price index adjusted for tax changes and excluding energy products

say a few words about the riksbank ’ s appraisal of the situation at the moment. the swedish economy is currently making a strong recovery. in the last inflation report the riksbank viewed that growth would be around 4 % this year and average almost 3. 5 % in the next three years. this seemed to be a higher rate of growth than the economy could sustain in the long run. as available resources are utilized, price pressure will grow. the task of monetary policy is to ensure that growth does not deviate too far from a rate that is sustainable, thus causing shortages and price pressure. diagram 6. the task of monetary policy function of the monetary policy growth new economy potential growth real growth time the riksbank was of the view that, in the next few years, the inflation rate would be lower than what might be expected with such strong growth. one reason for this was that the modest increase in underlying domestic inflation anticipated in our forecasts was offset by a stronger krona and lower oil prices. our assessments also took into account the fact that in recent years domestic price pressure had been lower than expected. we do not know exactly why domestic inflation has been so low in the last few years. deregulation of the electricity and telecom markets is one important factor. but competition has increased in other product sectors too, due to globalization in general and to membership of the eu in particular. our forecasts are also strongly influenced by our estimates of capacity utilization in the economy and of potential growth. there is some uncertainty in both cases. in the last few years we have changed our minds and become more optimistic when it comes to capacity utilization. the potential rate of economic growth may also have increased somewhat. the slightly higher rates of investment and productivity suggest that a somewhat higher rate of growth may be possible. nowadays, the riksbank assumes a potential rate of growth of between 2 and 2. 5 %, which is a slight upwards adjustment compared with the 1980s. however, uncertainty about these factors makes it necessary for the riksbank to keep a close watch on developments and revise conventional wisdom where necessary. one of the most important variables when it comes to assessing future inflationary pressures is wage trends. this is perfectly natural, since wage costs represent almost 70 % of the total value added in the economy and are therefore crucial to the development of costs and prices. historically, rising wage costs have covaried with inflation, even though substantial deviations can occur in some years since