Matters would be different if the effects in question were temporary, so that they only affect the price level for a year or so. In that case there might be grounds for disregarding them. But deregulations and increased international competition are presumably as much a part of the inflation process today as were the opposite effects that increased employer contributions and other taxes exerted in the 1970s and 1980s. 3. Why have a rule of action? The Riksbank formulates monetary policy primarily on the basis of a forecast of inflation one to two years ahead. If inflation, measured as the annual change in the CPI, is expected to be above 2% during this time horizon, the interest rate is normally increased and vice versa. This rule of action is intended to: •  make policy more intelligible;  •  act as a support for internal decision-making;  •  enhance external credibility. The rule of action has been an important support for the Riksbank in recent years. Besides helping to make monetary policy more intelligible, it has contributed to a tighter analysis and a more structured internal discussion. But a simple rule such as this clearly cannot be applied mechanically. A noteworthy aspect is the time horizon to which the rule refers. The Riksbank is required to maximise goal fulfilment, that is, to keep inflation in line with the target, for ever.
Lars Heikensten: Six monetary policy issues  Speech by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, at Umeå School of Business and Economics, in Umeå, on 7 November 2000. *  *  *  First a word of thanks for the invitation to visit Umeå and talk about monetary policy. The Swedish economy is developing favourably. Growth has been impressive in recent years, averaging around 3% in annual terms, and at present the rate may be even higher. This has contributed to a rapid reduction of unemployment and strongly rising employment. A look at the statistics shows that the present expansion of employment in Sweden is the fastest since the labour force surveys were first published in the early 1960s. And although growth has been strong, inflation has remained moderate. The explanations for the good circle in which our economy is now moving are not simple. But I do believe that one contributory factor is the realignment of economic policy that has been achieved in the past ten to fifteen years. This has involved deregulating the credit and foreign exchange markets, modifying components of the transfers system and paving the way for stronger competition. All this has helped to improve the workings of the economy. Another factor, perhaps the most important, has been economic policy’s commitment to stability, with price stability as a statutory objective and a successful consolidation of the public finances.