But if one compares it with the rigorous institutional framework that encompasses monetary policy, it is difficult to rid oneself of the thought that the “arm" which would mark the distance from present party politics would be on the short side. I believe that there are some worrying signs here. It appears as though there is a tendency, from a political point of view, to see stabilisation policy, or more precisely the repo rate, as the main solution to the problems we are currently seeing in the Swedish labour market. As I see it, there is an evident risk that this type of view would also colour the discretionary fiscal policy with an increased stabilisation policy responsibility. However, before I round off, allow me to say that it is possible that situations might arise that are so serious from a stabilisation policy point of view that discretionary fiscal policy measures could be warranted. Here I am mainly thinking of situations with a severe fall in demand in the nature of a depression, where both fiscal policy and monetary policy would be forced to make substantial departures from the normal principles. These would be extremely unusual circumstances, however, and do not provide any argument for setting up a permanent stabilisation policy committee. So, my answer to the question on whether monetary and fiscal policy should be developed is yes, but not in the direction LO appears to have in mind.
To be even more explicit; when we formulate our policy we have on several occasions deliberately chosen to allow deviations from the inflation target for short or long periods of time. When the consequences of the deviations have been lower interest rates than would have been the case with a stricter interpretation, there has been practically no criticism. However, it has been rather different with regard to deviations in the other direction. Neither the Riksbank nor any other central bank using inflation targeting can be described as an “inflation nutter”, to borrow a famous phrase from Mervyn King, now Governor of the Bank of England. That is, we do not focus solely on stabilising inflation; we also take into consideration the real economy – conducting what is usually termed flexible rather than strict inflation targeting policy. This is also entirely in line with our task as laid down in law. There are also other types of consideration that need to be made in monetary policy. One that is immediately apparent is how financial stability will be affected by the interest rate decisions. Over the past year, and also on a few earlier occasions, there has been extensive discussion of developments in the credit market at our monetary policy meetings. We have relatively short experience of how credit cycles affect the economy; up until the 1980s the financial markets were strictly regulated. Our knowledge of the risks entailed in a rapid increase in indebtedness and asset prices is thus limited.