mr heikensten examines different aspects of the new economy and its implications for monetary policy speech by mr lars heikensten, first deputy governor of the sveriges riksbank, to the riksdag ’ s standing committee on finance, stockholm, on 24 february 2000. * * * the new economy, our topic today, is a concept that people are using frequently without always taking the trouble to explain what they mean by it. as interpretations differ somewhat, the discussion is liable to be a little confused. according to the definition most people seem to have in mind, the new economy is a result of a favourable shift in trend productivity that has raised the potential growth rate. this shift is attributed in turn to the development and spread of information technology ( it ). another common explanation for the higher productivity growth is the stronger competition that has resulted from deregulations and an increasingly integrated global economy. moreover, in that much of the discussion of the new economy originated in the united states in the light of the good economic performance there in the 1990s, emphasis has been placed on the importance of a good macroeconomic environment. my starting point today is the us economy. my primary aim is not to present a comprehensive picture of developments there but rather to highlight the issues that these developments have raised and initiated the debate on the new economy. while my discussion will centre on the advances in it, for the us economy there have been other beneficial factors. then i shall look in a more principled way at what the new economy may imply for monetary policy. in this context i shall mainly consider the consequences in terms of higher productivity growth, but i shall also be touching on the new economy ’ s impact on demand, which has attracted less attention in the public debate. this will be followed by a look at sweden and the conditions for a new economy and the inflation process. what is the situation here as regards, for example, the use of it and competition? has the new economy led to changes in the inflation process? finally, i shall be saying something about what the riksbank has to consider in the context of the new economy ’ s existence or non - existence. my review today obviously will not result in definite answers either way. the questions are too complex for that. economists are finding it difficult in general to arrive at sound explanations for technical development and growth. the discussion about the new economy is therefore welcome on that account. it can inspire studies of the driving forces behind the technical

changes in price pressure are parried with the interest rate. to sum up, to the extent that the new economy is a reality, its supply - side effects can be expected to make price tendencies somewhat more subdued than otherwise. if the effects are not transitory, they could pave the way for a less tight monetary policy. at the same time, demand is normally affected as well and there is a risk of this getting out of step with the stronger growth. 3. conditions in sweden one approach to the question of whether the new economy could also show up in sweden involves looking at conditions in sweden for some of the factors that are generally considered to have played an important role in the united states : the it revolution, increased competition and the macroeconomic environment. 3. 1 one question is how sweden compares with the united states in terms of the technologies that are considered to drive the process. although there is a lack of fully comparable statistics, it is hardly controversial to say that it use in sweden is high - higher than in many other countries in europe and possibly much the same as in the united states. the per - capita level of internet subscriptions is one of the highest in the world, on a par with the united states, and so is the number of pcs per capita. in certain respects sweden is even ahead of the united states. in per - capita terms, mobile phones are used more in sweden than in the united states and most other european countries. sweden also tops the united states in the domain of mobile internet, as witness both microsoft ’ s decision to locate the development of such systems here and the first wap phones in swedish shops. internet use in sweden is also well in line with the united states. market surveys by it consultants admittedly indicate that in relation to total retailing, internet shopping for goods is somewhat higher in the united states but sweden is ahead of many other countries in europe. most of the portals and e - commerce sites are also american. but a considerably higher proportion of swedish banking is done on the internet and sweden has been an early starter with models for internet business - to - business transactions. we also know that in the latter part of the 1990s, it - related sectors, including the successful telecom industry, accounted for almost a tenth of manufacturing output in sweden. figures from the association of swedish engineering industries show a remarkable increase during the decade, from a share of just over 2 % in 1993 to more than 12 % in 1999. according to the same source