The Riksdag’s possibility of sanction is to replace a member of the executive board each year, as the members of the executive board have varying periods of office. The Chairman and Vice-Chairman of the Governing Council of the Riksbank follow the executive board’s work by having the right to attend and speak at board meetings. This is how it must be in a democracy. Delegation of power must be accompanied by a possibility of holding to account. By the Riksbank being open about its objectives, its forecasts and the assessments that have been made by the executive board, confidence can be established in the Riksbank’s policy among politicians, investors and the general public. I consider that Sweden has a found a reasonable and balanced approach to implementation of the EU directive. 5. Are there alternatives? We have thus noted that Sweden has undertaken a fundamental change of policy. From having directed stabilisation policy at full employment as the highest priority, policy has been realigned to create stability. Low inflation is to constitute the economic environment in which full employment shall be restored. 7  BIS Review 59/1999  The objective of “price stability” is delegated to an autonomous Riksbank instead of – as previously – fiscal and monetary policy being co-ordinated by the Government to achieve both full employment and price stability. Full employment is aimed at by long-term economic growth. I have given a fairly detailed account of the failures of stabilisation policy that have led to this change of course.
The shift to a new policy took place between 1993 and 1995. 3  BIS Review 59/1999  However, it should be added with regard to the failed defence of the krona, that experiences of free capital movements were not especially extensive. The Government and the Riksbank and political analysts in Sweden did not have any experience of the conditions for economic policy in a globalised world. The new stabilisation policy regime The Government formulated the goal for monetary policy itself in January 1993. Inflation was to be maintained at two per cent per year with a tolerance interval of +/- 1 per cent. The goal is symmetric. It is as important to bring inflation up to two per cent when actual inflation is under two per cent as it is to bring down inflation when it is higher than the target. This can be said but a lot of practical issues remained to be resolved and the answers are not at all obvious: 1. How is inflation to be measured: by CPI, the GDP deflator, or some other measure of price movements? 2. Shall the Riksbank have other objectives besides price stability? 3. Shall policies be directed at controlling the money supply or inflation directly? 4. How is confidence to be established in the Riksbank’s policy and expectations about low inflation? 1. The inflation target The Riksbank’s objectives has been expressed in the following way in legislation: “The objective of the Riksbank’s operations shall be to maintain price stability.