the transition from high inflation would be costly in terms of temporary job losses and a decline in income. but that cost is now behind us and the conditions are in place for a lower level of unemployment in the long run. however, this requires a willingness to discuss the real causes of the weak employment growth in sweden. 1. inflation rate annual percentage change inflation rate average inflation rate 1975 - 1994 8. 1 % 1965 - 1974 5. 6 % 1956 - 1964 3. 4 % - 2 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 - 2 source : statistics sweden 2. averages for the periods 1970 - 1989 and 1995 - 2003 1970 - 1989 1995 - 2003 inflation gdp growth productivity change, nominal wage rises, whole economy whole economy real wage rises, whole economy open unemployment source : statistics sweden 3. open unemployment i different counties share of the labour force i each county respectively norrbottens gavleborgs skane orebro dalarnas vastmanlands varmlands sodermanlands blekinge vasternorrlands gotlands ostergotlands kalmar vastra gotalands hallands stockholms vasterbottens uppsala kronobergs jonkopings source : statistics sweden 4. proportion of open unemployed members of different unemployment benefit funds per cent of members hotel and restaurant workers building workers commercial employees industrial workers transport workers seko htf sif m unicipal workers local government officers graduates teachers government officers note. htf = the salaried employees ’ union. sif = the swedish union of clerical and technical employees in industry. seko = the union of service and communication employees. the building workers ’ funds consist of the building union ’ s and the swedish painters ’ union ’ s unemployment benefit funds. the industrial workers ’ funds consist of the unemployment benefit funds of the swedish metal workers ’ union, the swedish forest and wood trade union, the swedish food workers ’ union, the swedish paper workers ’ union, the swedish graphic workers ’ union and the industrial workers ’ union. the number of members in the unemployment benefit funds included in the chart comprised in 2003 around 88 per cent of the total number of unemployment benefit fund members in sweden. source : national labour market board.

to put a price on the miss in the shape of lost jobs. we welcome all criticism that is underpinned by solid analysis, since it enables us to enhance our forecasting ability. however, i think it ’ s important to clarify a number of points regarding the criticism in which a number of commentators have claimed that the riksbank ’ s actions have caused the loss of 20, 000 to 75, 000 jobs. the first is that we have an entirely symmetric approach to deviations from the target. it is just as bad to undershoot the target as to overshoot it. sometimes i get the impression that at least some of the criticism is based on the idea that the riksbank has some kind of “ hidden agenda ” that is leading us to deliberately try to keep inflation below our set target, or at least that we think it ’ s less problematic if inflation is below target than above it. i can assure you that we have no such “ hidden agenda ”. the riksbank always aims to meet the inflation target. the second is that there is no such simple relationship between interest rate decisions and unemployment, as the criticism suggests. were the repo rate able to steer developments in the economy so directly, inflation targeting would be much easier, but this is not the case. the economy is exposed to new shocks all the time, and it is difficult to discern their significance and how they can be countered by monetary policy. what the riksbank can do, in a complex world, is to influence resource utilisation and economic activity so that inflationary tendencies are kept fairly well in check, at the same time as a host of other factors affect employment in parallel and interact with the monetary policy effects. in this work we try to avoid unnecessary fluctuations in output and employment, but we are not able to fine - tune the economy exactly. the fact that the riksbank ’ s power to influence employment is both short - term and relatively limited is not inconsistent with our ability to keep inflation in check. the latter is normally achieved by affecting inflation expectations. as long as our monetary policy is credible, it is enough to make small interest rate adjustments to keep inflation close to target. in this way, the riksbank sends out a signal that it is keeping a close eye on inflationary tendencies and everyone knows that stronger measures await if inflation expectations take off in either direction. so, there is no simple relationship between monetary policy and employment. nevertheless, for the sake