One concrete proposal that is put forward is that monetary policy should support a target for an employment rate of 80 per cent.8 The level of central banks’ inflation targets has begun to be discussed internationally as a result of the recent crisis.9 One argument is that if the targets were set slightly higher, it would make it easier to stimulate economies in deep recession, as it would reduce the risk of the policy rate reaching the zero lower bound. This is a relevant argument. Moreover, it is probably not the case that an inflation rate of, say, 3 per cent would be more problematic to live with than an average inflation of 2 per cent. It is only at considerably higher figures that inflation is harmful. Difficult to change an established inflation target However, it is one thing to set an inflation target for the first time, and a quite different thing to raise an existing target. If we go back twenty years in time, to when the policy of inflation targeting was introduced, the target could in principle have been set at 3 instead of 2 per cent. It is possible that it would have been a little more difficult to make the target credible, partly because it should have been higher than actual inflation at the time – which was fairly exactly 2 per cent, and partly because the few central banks that had begun targeting inflation at that time had chosen targets on or close to 2 per cent.
We have now lived with inflation targeting for almost twenty years. I am convinced that most people today would say that it has worked well on the whole – that it has fulfilled its purpose, and perhaps even exceeded expectations. But when one has got used to a particular system over a long period of time, it is fairly natural to start looking for faults and begin to question whether it might not be possible to make some modifications and improvements. And I do have the impression that inflation targeting in Sweden has recently been criticised somewhat harder and somewhat more often than usual. 1  For an interesting account of the situation at the Riksbank at this time, see Andersson, Krister (2003), “Utformningen av inflationsmålet och den penningpolitiska analysramen” (the shaping of the inflation target and the framework for monetary policy analysis), in Lars Jonung (ed), På jakt efter ett nytt ankare (looking for a new anchor), SNS Förlag. BIS central bankers’ speeches  1  Today I intend to discuss and respond to three types of criticism that have been put forward. The first is the claim that the Riksbank has an inbuilt tendency to set the interest rate too high and has thus caused unemployment to be unnecessarily high. The second criticism suggests that the target for monetary policy should be revised, by raising the inflation target and giving the Riksbank a numerical target not just for inflation, but also for employment or unemployment.