This is despite the well-known difficulties in determining the GDP gap.14 I believe that one can make a fairly good assessment of the GDP gap by combining a production function approach with business tendency data and other short-term statistics.15 GDP is a central variable in the forecasting work and the variable that, despite its well-known deficiencies in measuring welfare, is most closely-related to welfare.16 We should also report fan charts with uncertainty bands for the GDP gap and other measures of resource utilisation, in particular unemployment, to illustrate the uncertainty in these measures, too. It is important to make good judgements of resource utilisation at the outset and to endeavour to ensure it is neither too high nor too low in the coming period. This can contribute to stabilising inflation close to the target. Resource utilisation is namely not only a target variable, but also an indicator of future inflation. Figure 10 shows the correlations between some measures of resource utilisation – GDP gap, hours worked gap, labour  13  See the Executive Board’s consultation response to the report “Evaluation of the Riksbank’s monetary policy and work on financial stability 2005–2010” (2010/11:RFR5), Sveriges Riksbank, 30 November 2011. 14  See, for example A. Orphanides, “Monetary Policy Lessons from the Crisis”, Central Bank of Cyprus, 2010. 15  See earlier speeches: S. Öberg, “Monetary policy and the elusive resource utilisation”, 25 May 2009; S. Öberg, “Potential GDP, resource utilisation and monetary policy”, 7 October 2010; and S. Öberg, “GDP growth and resource utilisation”, 6 October 2011.
Conclusion When I look back at monetary policy since the current monetary-policy regime, with a floating exchange rate and an inflation target, was introduced at the beginning of 1993, I think that it has on the whole functioned fairly well. One might possibly think that monetary policy was too tight in 1994–1995 when the Riksbank raised the repo rate at the same time as the budget consolidation work was holding back inflation. However, it was important to bring down inflation and inflation expectations to a much lower level than in the 1970s and 1980s. One might also think that the assumption of an unchanged repo rate that was used as a basis for the forecasts during the first years was too simple. On the other hand, one has to see this more as a part of the communication strategy that was being followed then. And it worked. Inflation expectations fell and have been established close to the target. I also think that monetary policy has worked well during the six years, 2006–2011, that I have been a member of the Riksbank’s Executive Board. CPI and CPIF inflation have on average been 1.7 and 1.8 per cent a year respectively. This is somewhat lower than the inflation target. However, given that the world has undergone the deepest recession since the 1930s during this period, it should nevertheless be regarded as a good result.