The step from forecast to repo-rate decision is also affected by other considerations. One issue is whether our assessments should stop short at the end of the forecast horizon. Another issue is that positive and negative deviations from our inflation target may entail different costs and affect the balance of monetary policy. Finally, I would like to underline my view that flexibility is crucial in monetary policy. The fact that we quickly changed the course of monetary policy during the crisis is a clear sign of flexibility. But even in more normal times it is important to remember that our knowledge of the future is incomplete and uncertain I am therefore in favour of repo-rate changes being made gradually in normal circumstances. This makes it possible to continuously analyse developments and to determine whether to continue to follow the chosen path, to call a halt or to change direction. Sudden and dramatic changes in monetary policy can then be avoided. We cannot do without forecasts I worked with macroeconomic forecasts long before I became a member of the Executive Board of the Riksbank. At that time I was involved in the nitty gritty of forecasting, now I am part of a process in which the spadework is done by others. My role in this process is to contribute assessments. A question I have often been asked is why economists bother producing economic forecasts – everyone knows that they often prove to be wrong.
Eichengreen, B. and K.H. O’Rourke (2010), “A Tale of Two Depressions: What do the New Data Tell Us”, in http://www.voxeu.org. Rancière, R., A. Tornell and F. Westermann (2008), “Systemic Crises and Growth”, Quarterly Journal of Economics 123(1): 359–406. BIS Review 84/2010  5