If private sector economic agents – workers, businesses, investors – thought we would implement a particular policy rule regardless of changes of these kinds, policy would not be effective at stabilizing private sector expectations in ways that promote the dual mandate objectives. This is particularly relevant in the unusual environment that we find ourselves in – the aftermath of a housing bust and a financial crisis. In the current context, there is an additional complication that is extremely important. Simple policy rules implicitly assume that monetary policy is unconstrained and that the Fed can always achieve the federal funds rate policy setting the rule proposes – even if it is negative. By extension, they also assume that it is as easy to ease policy as it is to tighten policy if certain risks materialize. In practice this is not the case. Because our traditional tool, the federal funds rate, is already at its effective zero lower bound, we may want to react differently to a given economic outlook and set of risks than we would if policy were unconstrained. We are certainly not completely constrained: we have additional tools such as the balance sheet and forward policy guidance that we can use to provide additional monetary policy stimulus. But these tools have costs as well as benefits. Moreover, we can only imperfectly translate the impact of these policy instruments into interest rate equivalents for the purposes of evaluation using simple rules.
Eva Srejber: Growth and competition - lessons from the past Speech by Ms Eva Srejber, First Deputy Governor of the Sveriges Riksbank, at Sparbanken Gripen, Båstad, 25 August 2003. *  *  *  Thank you for the invitation to come here and speak on the occasion of Sparbanken Gripen’s 150th anniversary. In my speech today, I intend to attempt to draw some conclusions from the experiences of our economic history during this period. One of my conclusions is that Swedish growth has been stimulated during the periods when we have allowed the market economy to operate under clear and fixed game rules, including a stable framework for both fiscal policy and monetary policy. If these conditions have not existed, we have paid a price in the form of weaker economic growth. This speech does not contain any signals regarding current monetary policy. The past 150 years have been an exciting time, in particular the first part of this period. This was when Sweden changed from being a remote, developing country with a high infant mortality rate, widespread poverty and starvation, into a prominent industrial nation. Around 1850 Sweden entered into a dynamic period of rapid development and change. A wave of liberalisation swept across the country and opened up important markets. GDP growth amounted to more than 2 per cent a year, which was twice as high as the growth rate during the first half of the 19th century.