##laced world economy. the riksbank ’ s monetary policy framework and strategy let me now, with this as background, move on to describe our monetary policy strategy in slightly more detail 2. the inflation target the statutory objective of the riksbank is to maintain price stability. we shall also promote a safe and efficient payment system. in connection with the introduction of this wording on the riksbank ’ s tasks into the sveriges riksbank act of 1999, the riksbank was also given greater independence, as i mentioned earlier. monetary policy is now formally the task of the riksbank and the six members of the executive board are expressly forbidden to, as it says in the act, seek or take instructions when fulfilling their monetary policy duties. the riksbank has chosen to specify an explicit target for inflation. the target is for the annual rate of change in the cpi to be 2 per cent, with a tolerance for deviations of plus / minus 1 percentage point. the decision to define the target for monetary policy in terms of a specific figure was of course partly due to the desire to create a nominal anchor that everyone could recognise and base their expectations on. however, another important reason was that a specific target would facilitate assessments of the riksbank ’ s activities and make it easier to hold the riksbank accountable, which was important when it had been granted so much independence. inflation can be measured in many different ways. the riksbank chose the cpi as target variable partly because it is a broad price index that represents typical purchases made by consumers and the index is familiar to the general public. but the development of the cpi cannot always indicate what monetary policy is needed at a particular time – no single inflation measure can do this. the riksbank therefore uses various measures of underlying inflation to describe the trend rate of inflation and to justify the monetary policy conducted. our most commonly used measure, with the not so pronunciation - friendly name und1x, consists of the cpi adjusted for certain items that are very directly affected by fiscal and monetary policy. so, there are educational gains with using measures of underlying inflation. however, one disadvantage of using different inflation measures in different situations is that it can create uncertainty as to how the inflation measure is defined, even when you try to be clear as to why a particular measure has been emphasised at a particular time. the riksbank has some experiences of this, which have given us reason to consider ways of reducing

higher and also more stable than in the 1970s and 1980s, and real wage growth considerably more favourable. productivity growth has been surprisingly robust – stronger than in the rest of the eu – and there now seems to be broad consensus that the economy ’ s potential growth rate has been raised. growth in employment has not been quite as good, but it is nonetheless worth pointing out that the situation today is far better than it was in the mid1990s. it is also interesting to study inflation expectations. although inflation has on average remained fairly close to target, there have of course been both shorter and longer periods where inflation has deviated significantly from the target. how have inflation expectations been affected by this? even though inflation expectations can be measured in different ways, i believe that the overall picture is clear. from around 1996 - 97 expectations about inflation a couple of years ahead have been in line with the target. in the shorter term, of course, they have sometimes fluctuated in line with the actual inflation rate. but seen over a longer period of time, expectations have been neither significantly higher nor see berg, c., and l. jonung, ( 1999 ), ” pioneering price level targeting : the swedish experience 1931 - 1937 ”, journal of monetary economics, 43, 525 - 551. significantly lower than the target. this is a much better development than many people expected when the new monetary policy regime was introduced in the early 1990s. it must also be pointed out that the change in stabilisation policy regime involved not only monetary policy. compared with other countries that have implemented similar reforms, it is perhaps primarily the changes in fiscal policy that distinguish sweden. in the mid - 1990s a vigorous consolidation programme and a framework with an expenditure ceiling and a balance target were introduced. the comparatively sound central government finances have been a great strength for our country over the past ten years. finally, i must in all fairness add that in addition to the shift in stabilisation policy regime there have also been a number of significant changes in other areas that ought to have contributed to the favourable developments over the past decade. i mentioned productivity growth earlier – the strength of this has surprised most economic analysts and forecasters in sweden. it can probably be attributed to a combination of several factors. for example, a rapid development in both the production and use of information technology has probably contributed to improved productivity. other factors may include deregulation of various markets and increased competition – the latter stimulated by eu membership and the increasingly inter