If these factors together imply that what is possible to attain is a long-run employment rate of, say, 75 per cent, it would be meaningless to give the central bank the task of promoting an employment rate of 80 per cent. What monetary policy might be able to do in such a situation is to make the employment rate temporarily reach 80 per cent by overheating the economy. But nothing would be gained by this, as the employment rate would soon return to 75 per cent. However, the overheating, in turn, could cause problems that might be difficult to deal with, such as making inflation expectations rise and creating asset market bubbles. Thus, one cannot give the central bank a numerical target for employment that it should strive to attain in the same way as an inflation target.11 It is sometimes claimed that the Federal Reserve is an example of a central bank with an employment target. Although the Federal Reserve Act states that the Federal Reserve shall “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates”, this does not mean that it in practice works with a numerical target for employment.12  10  However, there is a research literature on so-called fiscal dominance that suggests that the central bank may experience difficulty steering inflation if public debt is too high. See, for instance, Leeper, Eric, M. and Tack Yun (2006), “Monetary-Fiscal Policy Interactions and the Price Level: Background and Beyond”, International Tax and Public Finance 13(4), pp.
But in this particular case it feels as though theory is not being used as a tool to model and structure reality but rather the opposite; that is, that one tries to adapt reality so that it fits the theory. In my world at least this is not the way to proceed if you want to make monetary policy clearer. A lack of clarity on a more general level? There is also a more general criticism that the Riksbank’s communication has not always made it easy to understand exactly why certain decisions have been made and why these decisions have been seen as being better than conceivable alternatives. Here, as I understand it, it is not a question of the critics lacking explanations in terms of any specific loss function, but rather that they feel the Riksbank’s reasoning has not been clear enough on a more general level. This is a criticism that I understand a bit better. Let me try to explain my view on this. The criticism often seems to centre on the debate between the members of the Executive Board in recent years, during the recovery from the global financial crisis. Put briefly, a majority of the Board members have advocated a somewhat higher repo rate than the minority. I would like to stress that it has not been a question of huge differences – it has not been about  20  The economist who has probably gone furthest in his criticism of fine tuning in monetary policy is Milton Friedman.