In Sweden the inflation target has contributed to stability in wage formation since the end of the 1990s, which could be compared with the 1970s and 80s when inflation was high and volatile and wage formation created major imbalances. The monetary policy anchor thus helps coordinate expectations in the economy, and this is particularly the case when the target is well-defined, clearly communicated and generally accessible. For this reason, most central banks with inflation targets have formulated the target in terms of a broad and well-known price index, and as a specific level of inflation. A tolerance band is also often specified to show that the central bank neither can nor wants to  1  I also discuss this in Flodén (2015). BIS central bankers’ speeches  1  meet the inflation target perfectly all the time. However, even when there is a tolerance band, the objective is for inflation to end up at the target level, or in other words in the middle of the tolerance band. If the target succeeds in coordinating inflation expectations, it can also become selfreinforcing. If expectations are in line with the inflation target, and if price and wage formation adapt to these expectations, actual prices will become consistent with the inflation target. When confidence in the inflation target is strong, it consequently becomes easier to meet the target. The flipside of this reasoning, however, is that the central bank has to fight even harder to succeed if expectations begin to deviate from the inflation target.
However, international real interest rates are currently very low, and various factors indicate that they will remain unusually low, at least in the medium term (see Armelius et al, 2014). BIS central bankers’ speeches  interest rate would not be restricted by its lower bound too often. During the financial crisis, however, several central banks lowered their policy rate over a short period to nearly zero, which they judged at that point to be the policy rate’s lower bound. And now, seven years later, the policy rates are still at the same low levels in many countries. Based on these experiences, many analysts think that it would be desirable to have an inflation target higher than 2 per cent. 9 This question is perhaps mainly discussed within the research community, though it has also been highlighted by the IMF and some central banks, among others. In the review of the monetary policy framework which the Bank of Canada conducts every five years, for example, an increase in the target is one of the areas to be examined. 10 Unlike the debate in Sweden, the international discussion therefore focuses on the central banks’ inflation targets needing to be raised rather than lowered. Some inflation is desirable for another reason, namely that wage formation can deteriorate when average inflation is too low. The reason is that in practice it has proved difficult to lower nominal wages.