Errors and omissions in statistics can also be one reason why forecasts are based on incorrect assumptions. It is therefore also interesting to assess the central bank’s forecasts against those of other analysts. Would it have been possible to make better forecasts than those the central bank produced? In order to answer this question, it is necessary to keep a record of both the central bank’s forecasts and other analysts’ forecasts. Another important factor in an assessment is whether the monetary policy decisions are wellbalanced, given the forecasts and judgements that have been made. The way the strategy has been formulated is important in this context. However, an assessment does not need to stop here. It may of course be more comprehensive and cover not only target fulfilment, but also the monetary policy framework as a whole. Against this background, let me just say a few words about the monetary policy strategy we have chosen in Sweden and the changes we have recently made to our analysis framework. The strategy has of course developed gradually during the period we have applied inflation targeting and is primarily the result of practical experiences of inflation targeting in Sweden and in other countries. New findings in academic research in this field have also had significance. The Riksbank’s monetary policy strategy In Sweden, the Riksdag (the Swedish parliament) has delegated the responsibility for monetary policy to the Riksbank, through the Sveriges Riksbank Act, which came into force in 1999.
2  BIS Review 25/2006  We thus endeavour to attain the inflation target within a two-year time perspective, under normal circumstances. In certain cases, however, we may need to have even greater flexibility than the twoyear perspective allows. If the economy were to suffer very large supply shocks, for instance, in the form of structural changes that have a major effect on inflation, or if extreme situations such as war or natural disasters occur, the process of bringing inflation back to the target may need to take even longer to avoid excessive strain on the real economy. In this type of situation it would be even more important that there was confidence in the inflation target. However, flexibility must not be allowed to undermine the nominal anchor. If confidence were to fail, we would be forced to act more strongly and would not have the same possibility to consider the real economy. Thus, the objective of monetary policy is to maintain price stability. However, it is possible to give consideration to the development of the real economy. This does not mean having a target for growth or employment. Instead, this type of consideration is made possible by the way in which we have chosen to formulate the principles for attaining the inflation target. However, it assumes that there is sufficient confidence in the inflation-targeting policy.