In Sweden and many other countries, the old idea, in the 1950s and 1960s, that a trade-off exists between inflation and unemployment resulted in an increasingly high level of trend inflation. When the drawbacks of active economic policies of this type became apparent, people in general and their representatives also feared the other extreme - a monetary policy that consistently aimed at keeping inflation as low as possible. Some countries, of which Sweden is one, are basically averse to deflation. So a regime whereby monetary policy has a systematic, long-term commitment to keeping inflation at a predetermined level of 2 per cent, neither more nor less, represents what many people perceive as a balanced approach to avoiding deflation as well as inflation. This has made it easier to establish the legitimacy of the regime in the public mind. Some relevant issues for a practitioner Let me now turn to some matters which a practitioner finds important and which will also be touched upon during the coming two days. BIS Review 58/1998  -3-  One issue concerns the indicator of inflation that is appropriate to use as an explicit target. The practical considerations in this respect are complex and are currently being debated in Sweden. The consumer price index has the advantage of being familiar to a wide public. Besides measuring trend inflation, however, it also gives information about price fluctuations that stem from transitory supply-side shocks, for example changes in indirect taxes and interest costs.
Conclusion Now when we are assembled here for an important conference, with interesting contributions from a number of the world’s leading experts in the field, we would do well to be temperate in our appraisal of what we believe we know today. To this end I shall quote Lawrence Summers. In connection with the Federal Reserve Bank of Kansas City’s symposium on “Achieving Price Stability”, Summers considered the major changes that have occurred in macroeconomic thinking in the past two decades and then rounded off by saying: “It would be a misreading of history to think that we have now identified final truth or that some of the views expressed here will not look archaic twenty years from now.” That is a stimulating and challenging statement. Think how dull life would seem if we ever arrived at the final truth. As luck would have it, the increasingly complex reality in which we live is an endless source of challenges for researchers as well as central bank colleagues throughout the world. References Alchian, A. & Klein, B., (1973), “On A Correct Measure of Inflation”. Journal of Money, Credit and Banking, vol. 5, no. 1, February, pp. 173–191. Goodhart, C.A.E., (1995), “Price Stability and Financial Fragility”. In The Central Bank and the Financial System, pp. 263–302, Macmillan, London Summers, L., (1996), “Commentary: Why are Central Banks Pursuing Long-Run Price Stability?”. In Achieving Price Stability. A Symposium Sponsored by Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 29–31, pp. 35–43. BIS Review 58/1998