governments to achieve sustainable growth. accordingly, many central banks today are conducting monetary policy under a more favorable mix of incentives. the key ingredients are independence from the government and accountability in decision making. the specific mandate for price stability varies from a central bank to a central bank. some central banks are required to hit specific numerical targets, and others do not. an example of a rather specific target is the policy target agreement 2002 between the minister of finance and the governor of the reserve bank of new zealand. the agreement says that " the policy target shall be to keep future cpi inflation outcomes between 1 per cent and 3 per cent on average over the medium term. " another example, which is less specific, can be found in article 2 of the bank of japan law. it says : " currency and monetary control shall be aimed at, through the pursuit of price stability, contributing to the sound development of the national economy. " from my point of view, and i believe my central bank colleagues would agree, the most important outcome is not hitting a specific numerical target. the achievement of price stability today in terms of a particular price index does not always guarantee sustainable growth in the future. it is, therefore, important to design and put in place an institutional setting that would create incentives for a central bank to pursue a price path consistent with sustainable growth. incentive mechanisms for a monetary policy committee incentives matter to central banks, not only at the level of macroeconomic targets, but also at the micro - level of day - to - day decision making. in other words, if the people decide that delegating price stability to the central bank leads to the achievement of price stability, how should the central bank make its decisions? in the growing number of cases, including the bank of japan, committees formulate monetary policy. though there is an old saying that a camel is a horse designed by a committee, i feel that there are advantages in monetary policy by committees. at a minimum, it enables a thorough discussion of issues reflecting the diverse background of committee members. on the other hand, the very fact that a monetary policy committee consists of different people with different opinions could create conflicting incentives within the committee. the chair of the monetary policy committee that consists of different people with different opinions must, therefore, take care in aligning the incentives of members and hopefully arrive at a consensus. i remember, in a recent publication, professor alan blinder describing chairman greenspan as leading the fomc " with a velvet glove, not

taken towards better and more coordinated crisis management in the eu, for instance. now we are facing the task of fixing what is broken so that it will stay fixed and function better in the future. this applies both to resolving the deadlock on certain markets and the distrust that has been created within the financial system, as well as putting the problems to rights in the long term. some measures have already been taken and more are on the way. it is not a simple process and it will probably take some time before the measures take full effect. but once we have closed the accounts on this crisis, we will hopefully have purged the parts that function poorly and replaced them with something better. it is necessary for the financial system to function in a safe and efficient manner for the central banks to be able to conduct monetary policy efficiently. this is a necessary condition for good and sustainable economic development on the whole. i have every hope that we can work together to achieve this! the riksbank ’ s tasks m aintain price stability promote a safe and efficient payment system presently requires continuous measures to counteract the effects of the international financial crisis we are prepared to act quickly and forcefully when necessary m onetary policy and financial stability tasks that are closely connected … ” physical ” and ” financial ” infrastructure m anaging risk, saving and borrowing investments that can create employment and growth m onetary policy works via the financial system m onetary policy is also important for financial stability it is important for economic growth that the financial system is stable the financial system the payment system bank groups lenders and borrowers macroeconomic developments and financial markets hiccup in the machinery interbank rate and the repo rate per cent repo rate three month interbank rate sources : reuters ecowin and the riksbank m ortgage rates have risen more than the repo rate per cent jan - 08 repo rate interbank rate m ortgages - sbab m ortgages - averages apr - 08 jul - 08 oct - 08 refers to three - month mortgage rate from sbab, three - month interbank rate sources : reuters ecowin, sbab, statistics sweden and the riks and monthly average for three - month mortgage rate for institutions ’ new lending. to ” promote a safe and efficient payment system ” preventive work and preparedness to take action regularly analyse threats and risks to financial stability preparedness and crisis exercises various tools when shocks occur, such as ; information and dialogue with the market