kristina persson : monetary policy and competition speech by ms kristina persson, deputy governor of sveriges riksbank, at roslagens sparbank ’ s annual general meeting, norrtalge, 17 april 2002. * * * thank you for the invitation to come here to roslagen sparbank ’ s annual general meeting. today, i do not intend to discuss current monetary policy, but rather to concentrate on an area that is of great significance for inflation and monetary policy, namely the competitive conditions in the swedish economy. the objectives for monetary policy are clearly stated in the sveriges riksbank act – to maintain price stability and to promote a safe and efficient payment system. the riksbank has further defined the first of these objectives in an inflation target, i. e. that the annual rate of change in consumer prices shall be 2 per cent, with a tolerated deviation interval of ± 1 percentage point. interest rate decisions influence price trends partly via the effects on resource utilisation, which means that the impact of the decisions has a certain time lag. it is partly for this reason that monetary policy is based on the total assessment of how the rate of price increase will develop one to two years ahead. there are a number of factors in the economy that affect inflation, but over which the riksbank has no control. these include the exchange rate, fiscal policy, international economic developments, potential growth, the functioning of the labour market and competition conditions on the product markets. today i intend to primarily focus on the relationship between monetary policy and competitiveness. let me first of all state that the riksbank has no responsibility for competition issues – our responsibility is monetary policy – and our most important instrument, the repo rate, does not affect competitive conditions on the different markets. however, changes in competitive conditions can have significance for price trends on certain sub - markets. from textbook to reality if there were perfect competition and total information, conditions that only prevail in university textbooks, market prices would be determined by companies ’ marginal costs. as there is competition between a large number of producers on every market, no company has any power over pricing and all consumers meet the same prices. on a market characterised by perfect competition, more companies would establish themselves as long as the prices exceeded the marginal costs and they could make a profit. as there would be no entry barriers in this simplified, but pedagogical textbook world, and no lack of skilled

in markets exposed to competition. a number of different markets have been opened up to competition over the past ten years and sweden is in many aspects a model for other countries to follow. examples of markets that have been exposed to competition are the electricity market, post and telecommunications, the capital and foreign exchange market and a large part of the transport sector. the main areas where competitive pressure in sweden is tangibly lower than in the eu and prices are higher are the food and housing sectors ( and the construction sector ). swedish food prices are just over 20 per cent higher than in the rest of the eu, while housing is around 35 per cent more expensive. these areas of expenditure together comprise more than ¼ of the cpi basket and are also responsible for a large part of low income earners'total expenditure. the absence of competition in the greater part of the public sector, which constitutes approximately 30 per cent of the swedish economy, entails both a risk of lower efficiency and that a significant part of the economy is not offered alternatives in the form of new business ventures with the growth and th flexibility that small companies can offer. during the 20 century there was a development towards a greater element of competition and use of alternative operating forms within the public services sector. in the central government sector, state - owned monopolies such as the post office, the telecommunications administration and the state - owned energy company have been opened up to competition. examples of remaining state - owned monopolies are apoteksbolaget, systembolaget, swedish railways, svensk bilprovning, svenska spel and statens pensionsverk. the county council / local authority sector has now chosen to expose to competition many of the businesses it runs. this includes waste transport, property maintenance, local bus routes, care of the elderly, cleaning, sns economic council ( 2002 ), unlimited competition, sns - forlag. exposure to competition is here defined on the basis of concentration and other barriers to competition such as companies'actions, regulations limiting competition, entry and exit barriers. price comparisons for housing are difficult. differences in quality and structure between the swedish and european housing markets makes accurate price comparisons difficult. for instance, there is a large supply of rental apartments in sweden, while in other countries there are few of these and they are often greatly subsidised. statistics sweden estimates that the relative price for housing in sweden is probably rather exaggerated. primary healthcare and dental treatment. studies by the swedish association of local