What I have in mind here is a strategy that is usually termed “lower-for-longer” or “makeup strategy” and which has been advocated by the previous chairman of the Federal Reserve (the US central bank) Janet Yellen. 8 The idea is pretty straightforward. Let us assume that the central bank in a recession has cut its policy rate as far as it considers to be possible. Exactly how low the interest rate can be set is not obvious and the assessments vary from country to country. The Federal Reserve usually regards zero as the lower bound and talks about the “zero lower bound”, while in Sweden and other countries, which have cut their policy rates below zero, we talk about the “effective lower bound”. For the sake of simplicity I will from now on refer to this simply as the “lower bound” for the policy rate. Let us now assume that the central bank would actually have needed to cut the policy rate lower than the lower bound for monetary policy to become sufficiently expansionary. To compensate for not being able to do this, the central bank can instead hold the policy rate at the lower bound for a longer period of time (see Figure 4). 9 Seen in a slightly longer perspective, for instance a ten-year period, this should give roughly the same average policy rate as if one had been able to cut the rate below the lower bound.
5 See, for example, Summers (2018). 3 [24]  from 0.75 to –0.5 per cent, the cut would be 1.25 percentage points, that is much less than the estimated 2.5–3 percentage points. 6  Raising the repo rate to have ammunition ready? Here I should like to briefly touch on a particular question before I go on. If one is concerned that the repo rate will not be sufficiently high when the next economic downturn comes, can one not just raise it to a suitable level now, as a preventive measure – so that there is ammunition available when needed? This is an argument sometimes put forward in the general debate. But unfortunately there are a number of problems with this argument. Firstly, the economy will of course be affected by interest rate increases. Growth would slow down and inflation would fall. If one raises the rate quickly and substantially, one might even cause the economic downturn one was ultimately aiming to prevent. But even if this was not the case then, secondly, a very probable scenario would be that inflation nevertheless fell substantially, perhaps down to 1 per cent or lower, that is, to the level it was at some years ago. This could in turn mean that the credibility of the inflation target was questioned once again and economic agents would begin to expect that inflation on average would be 1 per cent rather than 2 per cent.