One way of evaluating how effectively the central bank implements monetary policy is therefore to simply investigate how well the market participants have predicted the changes in the central bank's interest rate path. We can also analyse how well the expectations regarding the future interest rate adapt to the central bank's new interest rate path after the announcement. 10 Figures 11 and 12 are examples of the type of figure that can be studied in this case. These relate to the first interest rate decision I was involved in making, in June 2007, and to the latest decision from February this year. Summary Let me now sum up by first returning to the question I raised at the start: when evaluating monetary policy with an inflation target, why is it not enough to simply compare outcomes and targets for inflation? One reason is that inflation reacts with varying time lags and to different degrees to monetary policy measures. Inflation is also affected by shocks that are difficult to identify or that occur at a later date. The central bank does not therefore have complete control over inflation. Inflation can be on target even if the central bank has acted wrongly but been lucky, or deviate from the target even if the central bank has acted correctly but been unlucky. Another reason is that the Riksbank and other central banks with inflation targets conduct flexible inflation targeting, which means that they strive to both stabilise inflation around the inflation target and to stabilise the real economy.
In the case of such a lambda, the point of contact will be lower down to the left, for example at point C, where the Taylor curve is flatter. The inflation forecast will then be further from the target while the forecast for resource utilisation will be closer to a normal level. It is of course not so easy to determine what a reasonably large lambda should be for a central bank. Neither the Riksbank nor other central banks have yet announced whether they apply a specific lambda and if so what this lambda is. In those cases where the decisions are made by a committee made up of several members, as at the Riksbank, it is also possible that different members attach different degrees of importance to the stability of the real economy. A question that then arises is how these different views should be aggregated. Nor is it entirely certain that monetary policy decision-makers are even clearly aware of the importance they attach to stability compared with the stability of inflation. If the central bank's forecasts are only based on a known model, like the Riksbank's main model Ramses, it is possible to determine the position of the modified Taylor curve and which point the Riksbank's main scenario in each Monetary Policy report corresponds to. 8 In practice, the Riksbank's forecasts and those of other central banks are based on several different models and a great deal of judgement.