If one claims this, one is also implying that central banks and governments do not have the possibility to choose the level of the inflation target, but that this is something determined by structural conditions in the economy. Ultimately, one thus also says that inflation is not a monetary phenomenon, which does not concur with what is widely accepted today. Important to maintain confidence in the target A slightly milder interpretation is that one did not literally mean that the inflation target should be lowered, but that the Riksbank, and all other participants in the Swedish economy should accept that inflation will continue to undershoot the target over a long time to come – despite the fact that it has already been below the target for several years. The main reason would be that the expansionary monetary policy required to bring inflation up to the target would also contribute to a further increase in house prices and household debt. I have some understanding for these thoughts, but I consider that they disregard a number of important circumstances as well. I believe that above all, one underestimates the importance of maintaining confidence in the inflation target and the problems that can arise if this confidence is lost. We have lived with an inflation target of 2 per cent for more than twenty years and few would claim anything other than that it has been a good system with good results for the Swedish economy.
Today I intend to take up a couple of questions that I consider relevant to both the debate in Sweden and the international debate. The first question is what role monetary policy should play with regard to promoting financial stability. This is a question that is still raised as one of the most important ones in the international discussions on possible changes in the inflationtargeting framework, although in many countries this has been overshadowed by the recent low inflation figures. A second question that, for natural reasons, is always topical when discussing whether the inflation-targeting policy needs to be modified is whether the level of the central banks’ current inflation targets – usually around 2 per cent – needs to be changed. This is also something that has been discussed quite a lot by academics and in various policy forums since the financial crisis. Internationally, the discussions have focused  BIS central bankers’ speeches  1  on the question of whether the target should be raised, while in Sweden the focus has instead been on whether the target has been set too high. I intend to address the arguments for both points of view and to give my own views on the subject. Should monetary policy take financial imbalances into account? But let me begin with the question of monetary policy and financial stability. One lesson from the financial crisis is that price stability is not sufficient to ensure financial stability in the economy.