Mr. Heikensten considers inflation and the interest rate in Sweden Speech given by the Deputy Governor of the Bank of Sweden, Mr. Lars Heikensten, at the Sweden Financial Forum, Örebro, on 15/10/97. What I have to say is based in the main on the Riksbank’s latest inflation report, which was published less than a month ago. In some respects, I shall be developing what we said there about the outlook for inflation, though our assessment of the situation is essentially unchanged. I shall begin, however, with some remarks about why monetary policy is constructed as it is, with the objective of safeguarding the value of money. 1. Monetary policy’s foundations Experience advocates a stable environment The reason why the Riksbank’s objective is to safeguard the value of money is basically simple: low, stable inflation contributes to a good environment for the growth of production and employment. Support for this view is readily found in the pattern of economic developments in different industrialised countries. In those countries where inflation has been allowed to accelerate, growth has normally been weaker and more erratic. We have seen this in Sweden. In the first two-to-three post-war decades Swedish economic policy was characterised by stable rules and inflation was low. Economic growth in those years was good and new jobs were created to a greater extent than in the past two decades, when inflation shot up and there was a series of devaluation cycles. There is really nothing odd about this.
As a rule, these estimates coincide. Norges Bank places considerable emphasis on the transparency and communication of monetary policy. Norges Bank’s analyses and the background for the Bank’s interest rate decisions are published regularly. The inflation outlook is presented three times a year in Norges Bank’s Inflation Report. Further assessments are presented every six weeks in connection with the Executive Board's monetary policy meetings. The Bank also reports on the implementation of monetary policy in its annual report. If there are significant deviations between actual price inflation and the target, the Bank will provide a thorough assessment in its annual report. Particular emphasis will be placed on any deviations outside the interval +/- 1 percentage point. Transparency about the intentions, strategies and implementation of monetary policy make it easier for economic agents to evaluate monetary policy. If monetary policy is predictable, an important source of uncertainty is reduced and the interest rate that is necessary to achieve the inflation target - all other thing being equal - is lower. A predictable monetary policy can thereby contribute to enhancing the efficiency and impact of monetary policy. Even though there is not necessarily a one-to-one relationship between transparency and predictability, some degree of transparency is probably a precondition for achieving monetary policy credibility. BIS Review 74/2001  9  In Norway at least it appears that transparency in Norges Bank's interpretation of the mandate and in the implementation of monetary policy has contributed to a somewhat more predictable monetary policy.