This part of the monetary policy decision-making process is important, as it provides a base for the Executive Board to be able to choose the decision alternative that appears to provide the best target fulfilment. The staff’s proposal for monetary policy is the most important base for the discussion at a longer meeting that includes a large number of analysts from the Monetary Policy Department and the Executive Board, and which is normally held around two weeks prior to the monetary policy meeting. The Financial Stability Department of the Riksbank also plays an important role in the analysis work and therefore takes part in this meeting. The Riksbank has always considered it important to monitor developments in the financial markets and in the Swedish banks, and this has been particularly important in the forecasting work during the financial crisis. The Executive Board members’ input is important at this meeting and may in particular affect the forecast for the repo rate. However, this has repercussions for the forecasting work as a whole, as the future repo rate affects most of the other variables in the forecasts. The Executive Board may also have views on other parts of the forecasts than the repo rate path, but the discussion usually mainly centres on what is a well-balanced monetary policy. At a shorter meeting that usually takes place the day after the large meeting, the members of the Executive Board have the opportunity to discuss the main scenario and give their views on it in a more limited circle.
We are as always prepared to take whatever measures are necessary to safeguard financial stability. If we need to take action we will, as usual, make it clear what we intend to do, how we will do it and when we will do it. The recent developments illustrate something that has direct relevance to the theme of my speech today – namely the difficulty in capturing all of the relevant factors when making forecasts. Sweden has little trade with Greece and our banks have little exposure towards the country. Nevertheless, Greece’s problems are important factors when we try to predict future developments in the Swedish economy. And this leads me back to what I had actually intended to talk about today – the role of forecasts in monetary policy. Probably like many other economists outside the bank world, I was very sceptical of forecasts when I came to the Riksbank last year. To me, making forecasts appeared to be an activity that required very elaborate machinery, with complicated models and vast amounts of data, the results of which were nevertheless usually incorrect. Since then I have gained a new perspective, both with regard to the process of making forecasts and their role in monetary policy decision-making. Today I intend to share with you some of my new insights into this field.