Unemployment in Sweden and selected countries Per cent 12  12  10  10  8  8  6  6  4  4  2  Austria Norway United States Sweden  0 94  96  98  2  The Netherlands United Kingdom Germany  0  00  02  04  06  08  10  12  Sources: Eurostat  Figure 4. Household loan-to-value ratio (debts/real assets) and the policy rate Per cent 100  10  90  9  80  8  70  7  60  6  50  5  40  4  30  3 Debt / Real assets (houses, summer houses, and condominiums)  20  2  Policy rate  10  1  0  0 71  76  81  86  91  96  01  06  11  Sources: Statistics Sweden and the Riksbank  BIS central bankers’ speeches  13  Debt/real assets, %  Figure 5. Household loan-to-value ratio (debt/real assets) and the policy rate (1993 Q1 – 2012 Q3) 70  70  65  65  60  60  55  55  50  50  45  45 0  2  4  6  8  10  12  Policy rate, %  Sources: Statistics Sweden and the Riksbank  Figure 6.
Following a further depreciation in the currency, rises in administered prices and the prospect of continued weak growth in productivity, inflation was thought “likely to remain above target for much of the forecast period”. But “attempting to bring inflation back to target sooner…would risk derailing the recovery” and it was therefore “judged appropriate to look through the temporary, albeit protracted, period of above-target inflation”. I don’t think this was so exceptional. There is no inflation-targeting monetary authority that behaves so rigidly as to attempt to offset all shorter-term shocks to inflation, no matter the effects on the variability of interest rates and output. As the economist Lars Svensson puts it, “in practice, inflation targeting is always ‘flexible’, because all inflation-targeting central banks not only aim at stabilizing inflation but also put some weight on stabilizing the real economy”. In the UK, this regard for the occasional trade-offs faced by monetary policy, and their implication for the planning horizon, was formally enshrined in the MPC’s remit in March 2013. The Committee is now required to “promote understanding of the trade-offs inherent in setting policy and… [to communicate] the horizon over which it is appropriate to return inflation to the target”. This description of the appropriate horizon is now a regular part of our communication, notably in the newly introduced Monetary Policy Summary that introduces both the Inflation Report and the Minutes of our meetings. What of the current situation?