At the same time as monetary policy is aimed at attaining the inflation target, it is also supposed to “support the objectives of general economic policy for the purpose of attaining sustainable growth and a high level of employment”. The Riksbank does this by not merely striving to stabilise inflation around the inflation target, but also striving to stabilise the real economy, that is, production and employment. The Riksbank thus conducts what is known as flexible inflation targeting. Flexible here means that the Riksbank does not focus solely on inflation. To be rather more concrete, one might say that every time we make a decision we try to find a forecast path for the repo rate that means monetary will be, as we say, well-balanced. This means that we try to find an appropriate balance between stabilising inflation around the inflation target and stabilising the real economy. One way of illustrating this balance is to say that the deviations arising during the forecast period between, on one hand, inflation and the inflation target, and, on the other, the real economy and a trend, may not become too great. …and in theory It is common in the literature to describe flexible inflation targeting as the central bank minimising a loss function that is a weighted sum of a measure of the variation in inflation and the variation in the real economy.
Figure 4: WW2 U-Boat Campaigns  Figure 5: War Games  Source: IWM Collections (public domain). Torpedo fired on a merchant ship (image available here). Source: GSC Game World (GNU FDL) (Image from ‘Cosacks: European Wars’ (image available here). The US Air Force has an agent-based model known as Systems Effectiveness Analysis Simulation (SEAS). The SEAS package models the entire surface of the earth and its satellites. Each agent has a specific longitude and latitude to a resolution of one millimetre. In order to allow interaction, SEAS agents are equipped with sensors, communications, and weapons allowing co-operative or competitive behaviour (Brooks et al (2004)). Most recently, the work on ABMs in a military context has taken on a new direction. As autonomous vehicles such as drones are used in war, they add a new dimension to ABM simulations. In a world of human agents, ABMs could only approximate agent behaviours. In a world of military automata, these simulations come closer to replicating real-world warfare (Sanchez and Lucas (2002)). A more benign military application of ABMs has been in the context of war games. Military ABMs were a forerunner of many of today’s computer war games: Eve Online, World of Warcraft and Command and Conquer are all popular, sophisticated ABM-based games which mix computer and human controlled agents. (c) Physical Sciences  As the Large Hadron Collider illustrates, modern physics is heavily computational in certain fields. This arises in part because even simple systems can quickly exhibit complex behaviours.