Assessments of the sustainable rate of unemployment can be made and discussed in an open debate within and outside the central bank, with internal and external economists who are specialists in the field of labour market research using micro and macro methods. A major advantage in this context is that Sweden has a tradition of outstanding labour market research at universities and research and evaluation institutes. It will also be simple and transparent to perform sensitivity analyses in the form of various assumptions about the sustainable rate of unemployment. If different members of the Executive Board of the Riksbank make different assessments of the sustainable rate of unemployment, they can simply and clearly explain how this affects their decisions. It is of course inappropriate for the central bank itself to calculate the price index that is used to assess the attainment of the inflation target, and it is a major advantage if this index is calculated by another, independent organisation or authority, like Statistics Sweden in Sweden’s case. For the same reason, it is inappropriate for the central bank to have a monopoly on calculating the normal level for the measure of resource utilisation used to evaluate target attainment. In practice it is impossible for outsiders (and most people at the Riksbank, including the members of the Executive Board) to verify and assess the calculations of potential production and hours worked that are performed. It is very difficult to determine whether the measures are reasonable and reliable.
However, the CPI also has a well-known disadvantage, which in my opinion makes it less appropriate as a direct, operational target for monetary policy. This disadvantage is that the CPI is directly affected by interest rate changes through their impact on housing costs. This short-term effect also has the reverse sign to the medium-term effect. This means that the Riksbank’s own repo rate increases contribute to an increase in CPI inflation in the short term but reduce it in the slightly longer term. The major interest rate changes during the crisis have led to considerable fluctuations in the CPI. I believe on the whole that it is better to consistently use the CPIF as an operational target for monetary policy and disregard the direct effects of interest rate changes on the CPI when assessing whether monetary policy is well-balanced. By stabilising the CPIF around 2 per cent, the CPI will be stabilised around the target in the slightly longer term. It would then be important to consistently use the CPIF to rank various monetary policy alternatives and not change back and forth between the CPIF and the CPI. If we sometimes refer to the CPIF and sometimes to the CPI, monetary policy will become unclear. The unemployment gap is the most appropriate measure of resource utilisation There are many ways of measuring resource utilisation, for example the output gap, the hours-worked gap, the employment gap, capacity utilisation or the Riksbank’s RU indicator.