Should, for instance, financial stability be included as a new objective for monetary policy, together with price stability and macroeconomic stability? 5 Or can the objectives, as before, apply to price stability and macroeconomic stability but with consideration to financial stability included in the prospects for these two quantities in the slightly longer run? 6 Theoretically, there may thus be some differences between different ways of including consideration of financial stability in inflation-targeting. In practice, I do not think the differences are so large – regardless of the underlying reason, the results are in practice that monetary policy is slightly adjusted to counteract potential imbalances on the financial side of the economy. 7 It may be worth pointing this out: a monetary policy that “leans against the wind” in this way does not actually scrap the inflation target and swap it for a target for asset prices or indebtedness. The inflation target is still the foundation. What this means is that in some situations monetary policy can be adapted so that it takes slightly longer for inflation to get back to the target that it would have done otherwise if one had not taken financial stability into account. A necessary condition for being able to give such consideration is that confidence in the inflation target is firmly rooted and does not risk deteriorating because it takes somewhat longer for inflation to attain the target. A monetary policy that leans against the wind thus assumes that inflation expectations are firmly anchored around the target.
The risks of a setback in economic activity should not be underestimated either. As we Executive Board members pointed out, we are always prepared to make monetary policy even more expansionary if we assess that the upturn in inflation is threatened. But even if the focus of the debate in Sweden is now of necessity on current monetary policy, we must not lose sight of the longer perspective. There is a lively international debate on whether, and if so how, inflation targeting should be changed in the wake of the financial crisis and the ensuing period of a long-drawn out economic recession, very low inflation and very expansionary monetary policy. What do the past eight years mean for the functioning of the economy and for monetary policy? Will we return to the way things looked before the financial crisis? It is important that we also take time in the Swedish debate to focus on these fundamental issues so that the discussions of our own monetary policy framework remain well-informed and productive. This is important not least for the external evaluation of monetary policy in Sweden now being carried out on behalf of the Riksdag Committee on Finance. There are many interesting question that are worth raising. One example that is of immediate interest in the Swedish debate is the question of whether monetary policy should have an explicit target for employment in addition to the target for inflation. This is one question that will be taken up in the external evaluation.