In practice, monetary policy has to some extent neglected the price stability objective and led to unnecessarily high unemployment. Against this background, it is remarkable that monetary policy in Sweden nevertheless seems to have been aimed at influencing household indebtedness. Any problems arising from household indebtedness could be better managed by other means than the policy rate, such as mortgage caps and tax regulations, which, unlike monetary policy, are effective in both the short run and long run (Svensson 2012c). The Riksbank’s mandate – price stability and the highest sustainable employment – demands a lower policy rate and policy-rate path I thus believe that monetary policy should be more expansionary than it is at present, that is, the policy rate and the policy-rate path should be lower. The Riksbank’s mandate should, in line with the Sveriges Riksbank Act and its preliminary works, be interpreted as price stability and the highest sustainable employment (Svensson 2012b).5 The highest sustainable employment is in practice the same as the lowest sustainable rate of unemployment. Every monetary-policy decision thus entails setting the repo rate and selecting the repo-rate path that best stabilises inflation around the inflation target and unemployment around a long-run sustainable rate.6  3  Andersson, Palmqvist and Österholm (2012) discuss the Riksbank’s target attainment during a different period, that is a period beginning in 1995 instead of in 1997, which gives an average of 1,5 per cent for CPIinflation in 1995–2011 instead of 1.4 per cent. During 1995–1996, CPI inflation was 1.8 per cent, which increases the average.
The fact that inflation has been lower than inflation expectations means that the longrun sustainable rate of unemployment may have been overestimated The Riksbank (2012a) presents a briefer estimate of long-run sustainable unemployment in the form of the interval 5–7.5 per cent, thus with a midpoint of 6.25 per cent. Long-run sustainable unemployment is calculated in two stages, as by the Ministry of Finance (2011). In the first stage, long-run sustainable unemployment in 2006 is estimated in the form of the interval 6.5–7.5 per cent, that is, with a midpoint of 7 per cent (to be compared with the Ministry of Finance’s corresponding estimate of 6.6 per cent). The second stage entails estimating the effect of government reforms and changes in the composition of the labour force on long–run sustainable unemployment since 2006, in the form of an interval of 0 to 1.5 percentage points, that is, with a midpoint of 0.75 percentage points (to be compared with the Ministry of Finance’s corresponding estimate of 1.6 percentage points). When this interval is deducted from the first one, we get an interval of 5–7.5 per cent, with a midpoint of 6.25 per cent (to be compared with the Ministry of Finance’s corresponding estimate of 5 per cent). The Riksbank uses as a base in the first stage the average rate of unemployment during the period 1999–2006, that is, about 7 per cent, which is then made into a midpoint in the estimated interval of 6–7.5 per cent.