Basically, there is now a broad consensus that low inflation is good for economic development and accordingly contributes to gains in prosperity. While it is true that in certain situations the economy can be stimulated by means of low interest rates, this works only if there are unutilised resources. Taken too far, it is liable to result in bottlenecks that push prices and wages up. There is then a risk of households and firms gradually starting to act in the belief that inflation will continue to be high — inflation expectations become firmly fixed on this. In other words, in the long run monetary policy is not capable of influencing growth. What does underlie a country’s economic development and thereby its prosperity are such factors as the labour force, a willingness to invest and technical progress. The best the Riksbank can do is promote an economic development that is more stable, with smaller fluctuations around the long-term trend. It therefore seems to me that the economic debate is somewhat lopsided. The long-term issues you work on in the Riksdag (Sweden’s parliament) ought to attract more attention. The Riksbank’s doings get more than their fair share. Convincing people in Sweden about the value of low inflation really should not be difficult. After all, what did we get out of letting inflation take off in the 1970s and ’80s? Recurrent devaluation cycles and a level of prosperity today that is considerably below that in many other countries.
Lars Heikensten: Behind the granite walls up at Brunkebergstorg - monetary policy in practice Speech by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, to the Riksdag's Social Democrats, Stockholm, 21 March 2001. *  *  *  The theme for today’s seminar is monetary policy in practice. I find it extra stimulating because it is a subject I don’t often get a chance of talking about. While thinking about how to arrange what I want to say, I felt that, besides talking concretely about how we at the Riksbank go about assessing inflation, it would be a good idea to spend some time on some matters of principle. In that way I hope to lay a good foundation for the ensuing discussion. First I shall say a little about monetary policy’s purpose and our target. Then I shall describe how we make our assessment and how the Executive Board works. Before winding up, I shall also consider some issues connected with communication and transparency. ‘Hate inflation’ As we all know, monetary policy’s purpose is to safeguard low inflation. That has been the case in any event since the beginning of the 1990s. It became explicit, of course, when the Riksbank adopted an inflation target in February 1993. Since 1999, moreover, the Riksbank Act states that the objective of the Riksbank’s operations shall be to "maintain price stability". So why is this our objective?