27  For example, Goodfriend and King (2016), p. 98, write as follows: “We do not think it sensible to extend the objective of the central bank to include numerical targets for employment and output. The experience of forward guidance in both United States and United Kingdom suggest that attempts to use numerical values for these variables can crumble in the hands of policymakers within a short period of time.”  28  See Woodford (2012). 29  See Stein (2014), Billi and Vredin (2014) and IMF (2015). 30  See Bryant, Henderson and Becker (2012) and Acharya (2015) for different arguments. BIS central bankers’ speeches  13  factors, on how well the price stability objective has been met and on how effective macroand microprudential policy are when it comes to promoting financial stability. Flexible inflation targeting involves, as I stated earlier, the central bank allowing certain deviations from the target in order to take, for example, output, employment or financial imbalances more into account. But this flexibility is not just something that is there, one has to accumulate it. A prerequisite for using the policy rate for something other than stabilising inflation is that confidence in the inflation target is firmly rooted and that it works as a nominal anchor in the economy. The higher the confidence in the inflation target, the more consideration the central bank can show for aspects other than inflation – the more flexible monetary policy can be.
Fiscal policy and monetary policy – mutually dependent Sweden and other countries that came through the acute financial crisis of 2008 – 2009 relatively well are characterised not only by an efficient regulatory framework for central bank operations but also by the fact that they have been implementing reforms for a long time that have improved the functioning of the economy, not least as regards how fiscal policy is conducted. The fact that Sweden has, over the last twenty years, managed to reconcile low and stable inflation with good economic growth and sound public finances depends to a large degree on fiscal policy reforms implemented in the wake of the crisis in the 1990s. But experience gained from the latest financial crisis shows that both these sides of the economic policy coin are intimately intertwined and cannot be entirely decoupled from one another. My interpretation of the research situation is that increasing importance is being attached to how dependent monetary and fiscal policy are on each other. 31 It is difficult to believe that it might be possible for a central bank to independently guarantee low and stable inflation, and financial stability, irrespective of how fiscal policy is designed. By the same token, it will be easier to maintain sound and sustainable fiscal policy if there is price stability and financial stability. The difficulties of many countries in countering the economic downturn after the financial crisis via an active fiscal policy has increased the pressure on central banks to stimulate economic activity.