The explanation the members themselves considered to apply the best was that the idea that one can use a figure to explain the relative weight of stabilising inflation against that of stabilising resource utilisation in the economy is overly simple. Many also considered that it was meaningless to try to quantify the relative weight given to inflation and resource utilisation, partly because this could depend on the situation in the economy and thus vary over time, and partly because the measures of resource utilisation are so uncertain. 6  In the academic literature one usually calls a policymaker who gives a relatively high priority to stabilising inflation, a small λ, conservative. A well-known theoretical result reached in the mid-1980s by Kenneth Rogoff, nowadays adviser to the Riksbank, was that under certain circumstances it might be optimal to appoint a governor who was more “conservative” than society in general (Rogoff, K., (1985), “The Optimal Degree of Commitment to an Intermediate Monetary Target”, Quarterly Journal of Economics, vol. 100, pp. 1169–1189). 7  Apel, M., C. A. Claussen and P. Lennartsdotter, (2010), “Picking the Brains of MPC Members”, Sveriges Riksbank Working Paper Series No. 237. 8  BIS central bankers’ speeches  It thus appears that there is fairly broad scepticism among the members towards drawing farreaching parallels between how monetary policy is described in theory and how they view it as practitioners.
One can thus imagine that part of the explanation as to why an alternative repo rate scenario may give a smaller mean squared gap than the main scenario could be that it is only a purely model-based adjustment of the main scenario. This raises another question: If one were also to supplement the alternative repo rate paths with personal judgements, would one always conclude that the main scenario would give the lowest loss? The answer to this question should reasonably be “yes, at least most of the time” – there are some reservations, which I will discuss in a moment. We try to conduct the policy we judge to be the best or “best balanced” and if we judged that another repo rate path than that in the main scenario would give a better outcome, we would of course choose that one instead. This should be visible in the mean squared gap analysis, that is, there should not be alternative repo rate paths that give a dot that lies south-west of the main scenario. Consideration to developments beyond the forecast horizon and risks There may also be other reasons why the main scenario does not necessarily provide smaller mean squared deviations than an alternative repo rate scenario. One is that the calculations are based on forecasts that extend no further than three years ahead. But there may sometimes be reason to consider what might happen beyond this time horizon, even if this is difficult to capture in a normal quantitative forecast.