Immediately after the inflation target was introduced in 1993 the Riksbank’s rhetoric and probably the actual policy were most strongly focussed on the development of inflation. The underlying factor behind this was probably concern over credibility problems. However, from the mid-1990s stabilisation of the real economy has increased in scope and the Riksbank has in various ways made clear that we give consideration to developments in the real economy. This was, for instance, one of the main points in the brochure "Monetary Policy in Sweden”, which we published in May 5 . 3  See Lars Heikensten’s speech, ”Thoughts on how to develop the Riksbank’s monetary policy work”, at the Swedish Economics Association on 22 February 2005. 4  See, for example, Apel, M. et al, (1999), ”Different ways of conducting inflation targeting – theory and practice”, Sveriges Riksbank Quarterly Review, 1999:4, 13-42, Svensson, L. (1997), ”Inflation forecast targeting: Implementing and monitoring inflation targets”, European Economic Review, 41, 1111-1146, and Batini, N., and E. Nelson, (2001), ”Optimal horizons for inflation targeting”, Journal of Economic Dynamics & Control, 25, 891-910. 5  See footnote 2 for details. ”Monetary Policy in Sweden” replaces the clarification of monetary policy published in 1999, see Heikensten, L. (1999), ”The Riksbank’s inflation target – clarifications and evaluation”, Sveriges Riksbank Quarterly Review, 1999:1, 5-17. 4  BIS Review 111/2006  In this context, let me also mention something about risks. More specifically, the risks connected to rising asset prices and credit expansions.
The solution was what might be called a shift in stabilisation policy regime, where the tasks of both monetary and fiscal policy were essentially redefined. We were given a clear division of roles in economic policy. Previously, fiscal policy had often been overly expansionary and contributed to high inflation. Now it was subjected to requirements for long-term stability and sustainability in the public finances. A floating krona meant that the main task of monetary policy was to directly act to ensure inflation remained at a low and stable rate. In January 1993 the Riksbank specified this task as ensuring that inflation remained at two per cent a year. This target would formally begin to apply with effect from 1995, but monetary policy would also be aimed at directly steering inflation during the interim period without intermediate goals, such as the money supply. This created a new norm for monetary policy and Sweden then became one of the first countries in the world to conduct monetary policy with a floating exchange rate and a specific inflation target. One interesting fact in this context is that Sweden actually had a specific target for prices during one period in the 1930s - this was the first and as far as I know the only time a country has attempted this.