Lars Heikensten: How to promote and measure central bank efficiency Speech by Mr Lars Heikensten, Governor of Sveriges Riksbank, at the Sveriges Riksbank, Stockholm, 23 May 2003. *  *  *  Let me begin by welcoming you all to Stockholm and Sveriges Riksbank. We have more or less made it a practice to organise an academic conference or workshop at least every second year on a topic which we think is relevant for central bankers. Last year the theme of the conference was Monetary Policy and Financial Markets in an Enlarged European Union. This time we have chosen the topic of Central Bank Efficiency. To attain legitimacy - and keep it - central banks have to use taxpayers' money in an efficient way, not least in countries like Sweden where the central bank is now an independent institution. This is an issue of great importance to the bank, and it has occupied much of our time in recent years. We want to continue this work and develop our thinking in the area. Efficiency is also a very important issue from a European perspective and will be as important should we become a member of the Eurosystem. Central bank efficiency is a fairly abstract concept that encapsulates several areas ranging from the roles that are appropriate for central banks to perform, to cost efficiency in a narrower sense. An investigation of the relevant literature shows that there has not been much research conducted on any of these issues.
Against this background, during 1996 it was possible to cut the repo rate to its lowest level since the early 1960s. Low inflation and decreased inflation expectations also contributed to falling bond rates, accompanied by an appreciation of the krona from the earlier lows. Since December 1996 the repo rate has been unchanged at 4.10 per cent. All in all, conditions were gradually created for a broader economic upswing. With the time lag that generally applies in economic policy, during 1997 we have observed a mood swing among households, leading for instance to increased private consumption, while export growth has BIS Review 101/1997  -2-  been maintained. The Swedish economy is entering a phase of high activity with a combination of strong domestic demand and strong export growth. The impact of the Riksbank’s current monetary stance will take about two years to materialise in full. We therefore have to assess the outlook for inflation as far ahead as in 1999. Such an analysis was presented some weeks ago in the inflation report. I shall be returning shortly to that report and subsequent developments but first I want to discuss the approach in principle to the conduct of monetary policy over the complete economic cycle. Monetary policy in a cyclical perspective A matter that savers and investors are currently discussing is not whether but when the Riksbank will raise the instrumental rate. An expected increase in the repo rate is also indicated by the structure of market rates.