Monetary policy should aim to stabilise inflation around the target and unemployment around a long-run sustainable rate. It should also be aimed at keeping inflation around the target on average over a longer period of time, to avoid repeating the policy than has led to unnecessarily high unemployment since 1997. The long-run sustainable rate of unemployment depends on the way the labour market functions and on structural conditions, and it must be estimated using empirical methods. These estimates should take into account  BIS central bankers’ speeches  9  the fact that average inflation has been lower than the average inflation expectations since 1997, to avoid a bias in estimating the long-run sustainable rate of unemployment. The problems with poorer matching, increasing long-term unemployment and a larger share of vulnerable groups on the labour market are arguments in favour of a more, not less, expansionary monetary policy so that we can bring down the high unemployment to a longrun sustainable rate. At present, when unemployment has been high over a long period of time, we need a particularly expansionary monetary policy, a large demand for labour and an inflation rate that is temporarily allowed to overshoot the target to bring down unemployment. As inflation on average has fallen below the target, an inflation rate above the target would at present also have the advantage that average inflation over a long period would come closer to the target, something that would contribute to avoiding the unnecessarily high average unemployment that earlier policies have caused.

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