Economic Policy Group Report 2012, SNS Förlag, draw the conclusion that there is not sufficiently strong argument to supplement the Riksbank’s inflation target with an explicit target for unemployment, or for raising the inflation target. BIS central bankers’ speeches  7  , where π is the forecast for inflation, π* is the inflation target and y-y* is the forecast for resource utilisation in the economy. The parameter λ represents the importance the central bank gives to stabilising the real economy in relation to stabilising inflation.14 It is thus a question of finding the interest rate that minimises the squared forecast deviations between actual inflation and the inflation target during the forecast period and the squared forecasts for resource utilisation.15 This theoretical description has been very useful in developing the policy of inflation targeting. It captures in an intuitive and relatively simple way the essence of inflation targeting and it has helped to structure our thinking.16 However, the step from theory to practice is far from as simple and straightforward as one might think. One often gets the impression from the current debate that “clarity” in monetary policy means that the central bank should follow this theoretical description very closely. Accordingly, monetary policy decisions should be justified on the basis of a detailed quantified path for both resource utilisation and the deviation of inflation from the target.
It is not, as one might sometimes get the impression in the current debate, a result of the Riksbank systematically putting on the brakes, thus pushing down demand and holding back price increases. If this had been the case, the low inflation would have gone hand in hand with a much weaker growth in the economy. So is this development in inflation a poor result for monetary policy? It is of course possible to have different opinions on this. But from what I have said so far, it should be clear that I believe there are good explanations as to why inflation has been slightly lower than the target. The repo rate has been cut more than it has been raised during this period, and there have been changes in the economy – which have been difficult to forecast and often beneficial – that have dampened inflation.6 To gain further perspective, it may also be valuable to go back to where I started, twenty years ago, just before the inflation target was introduced. As I observed earlier, the high inflation trend at that time was a fundamental problem in the Swedish economy. During the decades preceding the crisis of the 1990s, average inflation was almost in double figures and varied substantially from year to year.