I think we have helped to contribute to the considerable progress made on a number of fronts, including making the financial system more resilient and robust and helping make monetary policy more effective, even at the zero lower bound. But there is much more work to do. In particular, I think we have just scratched the surface in understanding how developments in one area, such as capital and liquidity requirements for large, complex financial institutions, affect other areas, such as effective monetary policy implementation. We still don’t have well developed macro-models that incorporate a realistic financial sector. We don’t understand fully how large-scale asset purchase programs work to ease financial market conditions – is it the effect of the purchases on the portfolios of private investors, or alternatively is the major channel one of signaling? There are many other riddles that remain to be solved. How does one design an effective reference rate that is informative, verifiable and not vulnerable to manipulation? If you manage to come up with one, how do you migrate the trillions of dollars of existing contracts to the new standard? The U.S. unemployment rate has declined more sharply than one might expect given the economy’s growth rate over the past few years. Is this permanent or will it reverse if the economy continues to grow and the pressure on labor market resources increases in the coming years? How does one end “too big to fail” for large global firms operating across different jurisdictions? The list goes on and on.
Irma Rosenberg: The objective of monetary policy Speech by Ms Irma Rosenberg, Deputy Governor of the Sveriges Riksbank, at a meeting arranged by Öhman Fondkommission, Stockholm, 14 February 2006. *  *  *  A discussion has recently taken place in the media on the objective of monetary policy. Some have argued that we should have more objectives while others considered that we already work with too many objectives and that this has created a lack of clarity. In my opinion this discussion is a bit misleading. We have one objective: keeping inflation low and stable. However, in our efforts to achieve this objective, we have, like many other central banks, opted to be flexible to avoid exposing the economy to strain. Our statutory objective is to maintain price stability. It has been left to the Riksbank to decide on the detailed interpretation of this objective. We have defined it as meaning that inflation should be 2 per cent. However, monetary policy affects the economy with a time lag and is simply not precise enough to maintain inflation at a constant 2 per cent. The inflation target includes a tolerance interval of +/one percentage point to underline that temporary deviations are permitted, provided that these are not too large. For further clarity, we apply the principle that in the event of any deviation, inflation should normally be brought back to the target within a two-year period. When we set the interest rate, we must accordingly base our decision on an inflation forecast.