But adaptation requires reflection and caution However, this would not be an easy task. Firstly, the central bank is of course unable to change its behaviour so much that doubts arise as to whether it is actually trying to maintain low and stable inflation. What is known as the nominal anchor, that is the landmark for pricesetting and wage formation, may then be loosened. This would mean losing all we have achieved over the past two or three decades. But even if nothing this dramatic happened, sufficiently large changes in the central bank’s behaviour might nevertheless have undesired consequences. The flatter Phillips curve could reasonably be due to economic agents, such as the social partners, having adjusted their behaviour to how they believe the central bank will act. If the central bank changes its behaviour too much, this may have the consequence that economic agents begin to act differently, too. We will then once again have a new playing field, where the Phillips curve may once again have become steeper.7 Even with these reservations, I believe that it is generally valuable for the central bank to constantly ask itself how it can best ensure that it deserves its independence. What I mean by this, of course, is not that it should anxiously ask its principal what to do – that would mean its independence was lost.
Looking at Sweden, I think it is quite clear that the introduction of inflation targeting in connection with the crisis in the early 1990s was one of the most important reasons why the Swedish economy has developed so well since then. However, financial crises can also arise in environments with low and stable inflation. Nominal GDP target scarcely better Can one say that inflation targeting has been an obstacle to the recovery, and in that case are there other ways of conducting monetary policy that might succeed better? Here one can begin by noting that, in general, inflation-targeting countries appear to have managed the crisis better than countries without inflation targets.12 The central banks with inflation targets acted more powerfully, inflation expectations in inflation-targeting countries were better anchored and the risk of deflation was lower. Nevertheless, the slow recovery in countries such as the United Kingdom and the United States has started a discussion as to whether alternatives to inflation targeting would be better. One suggestion that has gained supporters is to replace the inflation target with a target for nominal GDP.13 The main discussion recently has concerned introducing a policy  9  See Reichlin and Baldwin (2013) for a compilation of a number of economists’ views on inflation targeting and its future. 10  See, for example, Bini Smaghi (2013). 11  See Bernanke, Laubach, Mishkin and Posen (1999). 12  See De Carvalho Filho (2011). 13  See, for example, Frankel (2012).