However, I am not saying that changes in the monetary policy strategy, for instance in the way suggested by Giavazzi and Mishkin, will never be considered. But we do need further analysis and debate before this can be considered in Sweden. Monetary policy and house prices Another point where I have some doubts is whether house prices should be taken into account in monetary policy. The specific recommendation given in the evaluation is that the Riksbank should clarify that house prices, like other asset prices, are not independent targets for monetary policy. In my opinion, this is a message that we have tried hard to convey recently, which has also been noted in the evaluation. I and other members of the Executive Board have explained, for instance, in several speeches that if prices in the housing market have had an effect on our interest rate decisions, this has not been a reflection of the inflation target being downgraded in any way or that we now have a special target for house prices. The reason is that we believe this the best way to safeguard what we have been set to safeguard – stability in the real economy and inflation. It is claimed in the evaluation that the Riksbank was initially unclear with regard to the reasons for allowing house prices to affect interest rate decisions and that this meant some people had interpreted it to mean that we had introduced a further target in addition to our inflation target.
If one instead has a target path for the price level, if prices are below the path this must be counteracted by more rapid inflation during a period of time to enable a return to the path prices were following before the deviation. If the intention is that prices should increase by 2 per cent, but over a period of time they have increased by less than this, the rate of price increase must be higher than 2 per cent for a period in order to return to the original price level path. The advantages and disadvantages of a price level target have been debated considerably in research and are also discussed in the evaluation. One example of an advantage of having a price level target is that it provides more guidance than an inflation target with regard to the price level far into the future. As I understand it, the authors do not appear to be advocating a pure price level target, rather some form of hybrid. In concrete terms, this means, if I interpret rightly, that the Riksbank should retain its inflation target but still to some extent compensate for the deviations from target that have arisen by deliberately allowing inflation to go above the target for a time. Here I can imagine a number of practical objections.