In particular, as of September 22, the maximum bid limit per counterparty was raised from $ billion to $ billion, an overall size limit of $ billion per operation was imposed, and an auction process was introduced to determine the interest  13  Indeed, even prior to 2008, the range of fed funds trading on a given day could be quite wide, and the effective rate deviated significantly at times from the target rate for a day or two. This did not have any apparent effect on financial conditions or the economy. 6  BIS central bankers’ speeches  rate on the operation and allocate take-up when the sum of bids exceeds the new $ billion limit. 14 The $ billion individual bid limit was informed by evidence on the desired investments of counterparties that had bid at the previous maximum of $ billion, and it took into account the size of assets under management of our counterparties. For almost all counterparties, the $ billion limit is unlikely to be binding in any circumstances. The $ billion overall limit was above total demand observed over the first year of testing, with the exception of the operation conducted at the end of the second quarter of this year. So what are the benefits of moving from a structure with individual caps alone to one with an aggregate cap as well?
This means  BIS Review 44/2006  3  that we do not set interest rates merely to ensure inflation is on target as quickly as possible in all situations. It is very important to emphasise that the possibility to formulate monetary policy based not only on inflation prospects but also on how production and employment will develop has come about because the inflation target is currently firmly anchored in the economy. Everyone knows that we will adapt our monetary policy to attain the inflation target. During the years when the inflation target was new, confidence in the target was too shaky for the Riksbank to dare to give consideration to anything other than attaining the inflation target. However, flexible application of inflation targeting is nothing new if one looks at the monetary policy we have conducted in recent years, once confidence in our inflation target had been established. In practice, as I said, we do not aim to bring inflation back on target as quickly as possible in every situation. The Riksbank follows the principle of normally aiming to bring inflation back on target within two years after a deviation has occurred. It is primarily in situations where inflation goes in one direction and the real economy, i.e. growth, employment, etc. goes in the opposite direction that there may be reason to bring inflation back on target at a more gradual rate. Economists usually describe these situations as the economy suffering a supply shock.