The point I want to make is that our monetary policy strategy provides for such a contingency. Forecasting is difficult So far I have been discussing advantages of the Riksbank’s current monetary policy arrangements and the drawbacks alternative strategies may have. In doing so I hope I have indicated that the alternatives also have some advantages, too. But I still consider that the advantages with the Riksbank’s way of conducting monetary policy outweigh the disadvantages. But something should also be said about what is perhaps the current regime’s greatest drawback, namely the difficulty in forecasting future inflation, not least in such a comparatively distant perspective as one to two years ahead. Completely reliable forecasts of future inflation presuppose success in two respects. One is managing to predict how shocks in the current situation will spread successively through the economy and affect the future rate of inflation. The other is managing to predict the shocks that subsequently occur in the forecast period and generate a future increase or decrease in the rate of inflation. While the first task is certainly difficult but maybe not completely out of the question, given that the course of events stays reasonably close to historical patterns, the second is virtually impossible. In other words, forecasts can err and we must bear that in mind. So I want to make it particularly clear that even though forecasting errors occur, I still consider that most things indicate that our present forecast-based inflation targeting regime functions satisfactorily.
From 1995 onwards the average rate of inflation, measured with UND1X, has been fairly close to the 2 per cent target. This has been accompanied by higher GDP growth than before. A part of the higher growth is of course explained by there being plenty of unutilised resources after the crisis in the early 1990s. BIS Review 24/2002  5  Variations in inflation and GDP growth Thirteen industrialized countries  1995-00  6  6  5  5 St. dev. inflation  St. dev. inflation  1970-90  4 USA 3  Sweden  2 Germany  4 3 2  1  1  0  0 0  1  2  3  St. dev. GDP growth  4  Sweden  USA  Germany 0  1  2  3  4  St. dev.GDP growth Source: The Riksbank  It cannot be argued that inflation targeting countries would have done worse if they had followed the same strategy as Germany and Switzerland, or that those two countries would have done equally well if they had targeted inflation. It is also conceivable that similar results would have been achieved with other monetary strategies, such as the pragmatic procedure at the U.S. Federal Reserve or the fixed exchange rate regimes – amounting in practice to a delegation of monetary policy to the Deutsche Bundesbank – that were used at times in, for example, France, Italy and Denmark.