11 No 1, 73–92. SFS 1988:1385, Sveriges Riksbank Act in its wording as of 1 July 2011, Sveriges Riksdag (the Swedish parliament). Statistics Sweden (2012), Housing and construction statistics yearbook 2012, table. Svensson, Lars E.O. (2010), “Why a lower repo-rate path?” speech in Umeå, 24 February 2012, www.larseosvensson.net . 10  BIS central bankers’ speeches  Svensson, Lars E.O. (2011), “Practical monetary policy: Examples from Sweden and the United States”, Brookings Papers on Economic Activity, Fall 2011, 289–332. Svensson, Lars E.O. (2012a), “Adjustment of the Riksbank’s estimate of long-run sustainable rate of unemployment”, annex to Sveriges Riksbank (2012b), www.larseosvensson.net. Svensson, Lars E.O. (2012b), “Different views on monetary policy”, speech in Stockholm 8 June 2012, www.larseosvensson.net. Svensson, Lars E.O. (2012c), “Monetary policy, debt and unemployment”, speech in Stockholm 14 November 2012, www.larseosvensson.net. Svensson, Lars E.O. (2012d), “The possible unemployment cost of average inflation below a credible target”, working paper, www.larseosvensson.net. Swedish government (1997), Riksbankens ställning (the position of the Riksbank), government bill 1997/98:40, www.regeringen.se. Sveriges Riksbank (2011), The Riksbank’s inquiry into risks in the Swedish housing market, www.riksbank.se. Sveriges Riksbank (2012a), “Long-run developments in the Swedish labour market”, article in Monetary Policy Report, July 2012, www.riksbank.se. Sveriges Riksbank (2012b), “Minutes of the monetary policy meeting no. 3”, 3 July 2012, www.riksbank.se. Sveriges Riksbank (2012c), “Minutes of the monetary policy meeting no. 5”, 24 October 2012, www.riksbank.se. Sveriges Riksbank (2012d), “Minutes of the monetary policy meeting no. 6”, 17 December 2012, www.riksbank.se. BIS central bankers’ speeches  11  Figure 1.

The best way to justify why a certain reporate path has been chosen is to compare the consequences of this path for inflation and the real economy with those of the alternatives. What does this mean in concrete terms? Well, it means that one must be able to show that the repo-rate path one prefers gives rise to the forecast for inflation and resource utilisation that best stabilises inflation around the target and resource utilisation around a normal level. It is as simple as that. Figure 2: Forecasts Figure 2 shows the forecasts for CPIF inflation (panel a), the output gap (panel b) and the hours-worked gap (panel c) for the main scenario and for the extended repo-rate path. The curves marked “Expected” show the forecast under the following assumptions: The extended-repo-rate path is announced in April. It is perceived as credible in the sense that the market from and including April expects an unchanged repo-rate path until the end of the fourth quarter of 2010. The curves marked “Unexpected” show the forecast under the following assumptions: The extended repo-rate path is not incorporated in market expectations and the market instead continues to believe in the main scenario’s repo-rate path. The market is taken by surprise in the third and fourth quarters of 2010 when the repo rate is left unchanged. We can see that the effects of an expected extended repo-rate path are greater than those of an unexpected extended repo-rate path.