, like a number of other central banks, uses one of these models for forecasts and simulations. the riksbank ’ s model is called ramses ( riksbank ’ s aggregate macromodel for studies of the economy in sweden ). in ramses, goods and labour markets are assumed to be in monopolistic competition and wages and prices are sticky. however, the ramses model analysis is only part of the forecasting process, which is also based on other statistical analyses and of course assessments. in the short term, that is to say the current quarter and one quarter ahead – what is usually called “ now - casting ” – we use different statistical models and indicators to make an assessment of the current situation. this analysis strives for the best possible accuracy in the forecasts and is often only vaguely anchored in economic theory. however, this type of forecast has a relatively good accuracy in the short term ( up to one year ahead ). 6 the forecast produced by the now - casting is then entered into the large dsge model and forms a basis for the model ’ s longer - term forecasts. the international forecast for all quarters is then also made outside of ramses and entered as input into the model. as all models are simplifications of reality, however, the final analysis must always contain elements of assessment that correct the results from the model. in addition, some markets, for instance, the financial markets, are not entirely reflected in these models. 7 the latter play an important role in the current stage, which is affected substantially by the financial turbulence. general equilibrium models are an important analysis tool as they provide a consistent picture of the economy. they can therefore also be used for policy analysis and to analyse alternative scenarios. f. e. kydland and e. c. prescott “ time to build and aggregate fluctuations ”, econometrica 50, 1982, 13451370. o. j. blanchard, “ the state of macro ”, nber working paper series, august 2008. see m. k. andersson and m. lof. sveriges riksbank economic review 2007 : 1. c. e. tovar. “ dsge models and central banks ”. bis working papers no 258. 2008. some facts about economic cycles according to economic theory, fluctuations in growth thus arise as a result of various external shocks affecting the economy. the size of the fluctuations is in turn affected by the functioning of the economy.

be placed in a context where many factors could conceivably affect inflation. the slowdown in economic activity has probably had a subduing effect on inflation. however, we have seen that economic cycles are not sufficiently regular to enable us to forecast how profound or prolonged a downturn will be. the relationship between economic activity and inflation is not particularly stable either. in the difficult deliberations we had to make in september we executive board members reached different conclusions, with a majority voting to raise the repo rate while the minority to which i myself belonged voted to hold the interest rate unchanged. on this occasion i shall not go into the various reasons for my stance in depth ; they were clear from the separate minutes of the monetary policy meeting and i discussed them in a speech i held a couple of weeks ago.