The only result to be achieved will be higher inflation than desired – that is to say that, on average, the inflation target will be exceeded. Consequently, for monetary policy, the highest level of resource utilisation that is sustainable over the longer term is the normal level. Other economic policies than monetary policy, such as labour market policy and structural policies improving the workings of the economy and the degree of competition, are needed to raise production and employment above the level that today is normal for these variables. Consequently, if the inflation target is given priority, a higher than normal level of resource utilisation cannot be sought in monetary policy. Some people may believe that priority to the inflation target may entail ignoring the real economy entirely and only caring about stabilising inflation. This is an altogether too narrow approach and characterises a so-called “inflation nutter”, to use Mervyn King’s striking expression. It is called strict inflation targeting in the terminology I proposed.1 Giving priority to the inflation target does not, therefore, mean that monetary policy should not stabilise resource utilisation, but, instead, that it should stabilise resource utilisation around a normal level, rather than a higher one. The same concept can be expressed with different words. When it comes to the average level of inflation and resource utilisation, there is only one numerical target, namely the inflation target. There is no independent numerical target for resource utilisation.
Lars Nyberg: Challenges following the current crisis Keynote address by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at the 12th annual conference of the Central Bank of Chile “Financial stability, monetary policy and central banking”, Santiago, 6 November 2008. Johan Molin, adviser at the Riksbank, represented Mr Nyberg in Chile. *  *  *  In the last couple of months we have seen authorities all around the globe taking massive actions to deal with the current financial crisis. Few countries are spared as the crisis spreads over the world, not even those that have not been directly exposed to the problems that initially triggered the crisis. Never before has a crisis had such a widespread global impact as the one we are now witnessing. This obviously puts governments, central banks and supervisors in a somewhat new position as they have to deal with the challenges that financial globalisation entails. Needless to say, these challenges are huge. Today I will only be able to address some of the issues that we will have to deal with when the crisis is eventually over. I will also try to give my views on what the lessons from the crisis imply for the central banks’ work on analysing financial stability and systemic risks. However, let me first say a few words about the context of the crisis. Context of the crisis When the crisis was triggered it happened in a quite traditional way.