See, for instance, “Vägen till ett stabilare Sverige” (the road to a more stable Sweden), Economic Policy Group report 1985, Center for Business and Policy Studies (SNS). A retrospective  BIS central bankers’ speeches  3  Almost at once, the question arose of what would guide monetary policy in Sweden, now that the fixed exchange rate had been abandoned. 6 By this time, some countries had already introduced inflation targets: New Zealand was the first in 1990, followed by Canada in 1991 and the United Kingdom in 1992. In January 1993 the Riksbank decided to introduce the inflation target we have now: The annual rate of increase in consumer prices shall be 2 per cent a year. 7 As we saw earlier, it is extremely important that the nominal anchor is credible. The results of academic research indicated that the conditions for attaining low inflation increased if one delegated monetary policy to an independent central bank, which focused on a clearly quantified target. This increased the element of “norm-based thinking” in monetary policy. The motives for short-term deviations from the inflation target declined, for instance, by trying to stimulate demand to gain political sympathies prior to an election. This also reduced the so-called time inconsistency problem in monetary policy, where the long-term objective of low inflation is not compatible with the short-term motives for high inflation. 8 The new Sveriges Riksbank Act meant that we have had an Executive Board with six members and greater independence from the political system since 1999.
A pattern can be discerned here; on several occasions before we have underestimated US consumer demand, in spite of rather optimistic forecasts. Thus, there may be reason to revise down the forecast of households’ saving ratio in the coming years, which if so would point to higher consumption growth. The increasingly weak dollar and stronger euro should also boost US exports, particularly in Europe. In the short term, there is really only one serious concern in the US economy: that employment growth continues to be weak. This could create uncertainty among households and contribute to subduing consumption. But it is hard to believe that it would derail the current upswing. Also with regard to Europe, we began to see signs of somewhat more robust growth and greater optimism at the end of last year. In our assessment in December, we forecast a rise in growth in the years ahead. New data received since December broadly supports this assessment. Business tendency surveys for manufacturing indicate that optimism has continued to increase while industrial production has now begun to rise slowly, although for the euro area as a whole the picture is still not as unambiguous as in the US. The strong performance of the euro could also result in higher imports and lower exports than expected, which of course would have an impact on demand in the economy and growth.