handle such a situation because sweden is in a position to implement an independent monetary policy focused on price stability ; the riksbank can quite simply raise interest rates and thereby counter any tendencies to overheating. participation in the monetary union, however, would deprive us of that possibility and we would then run the risk of landing once more in a situation like that in the late 1980s. this account of the problem has a kernel, to which i shall be returning shortly, that deserves to be taken seriously. but the arguments also suffer from distinct weaknesses. for one thing, they assume that policy will be unsuccessful. the starting point is that the fiscal stance will be unduly expansionary and that sweden will deviate seriously from the cyclical path in the rest of europe. so far, however, the empirical foundation for this case is weak. what we know to date about fiscal policy indicates that its direction is now becoming more neutral after a series of years in which its impact on the economy has been restrictive. thus, as things stand at present, swedish fiscal policy will come to be more in line with the stance in the euro countries. it should also be noted that many countries in the monetary union are doing relatively well there despite a level of activity that for some time has been or is stronger than in sweden. it is mainly two countries, italy and germany, albeit important for the euro area, that have fallen behind appreciably and even there it now looks as though activity has turned upwards. for another thing, the argument presupposes that any problems with overheating can be tackled successfully by the riksbank. that is certainly true in the sense that we are able to raise the interest rate and ensure that inflation comes into line with our target. but the picture as presented is too rosy. if wage formation were to fail or budget policy became excessively expansionary, the restoration of a balanced economy would be costly : growth would be depressed and employment would presumably fall when interest rates are raised, accompanied perhaps by an appreciation of the krona. in this sense, access to a national monetary policy is not a patent remedy. at the same time, it is clear that we – as a member of the monetary union – would lose the option of guaranteeing low inflation even by having recourse to this costly cure. for example, if the labour market organisations were to make unduly high wage settlements or if fiscal policy were to get out of hand, the ri

usual forecast horizon – as i currently see good reason to do this. reflections on judgements and monetary policy decision - making this leads me on to a slightly broader question regarding judgements and how they fit into the monetary policy deliberations. let me therefore conclude with a few words on my views on this and how i approach a repo rate decision. it is sometimes claimed in the economic debate that we at the riksbank rely too heavily on economic models and that this can lead us to make the wrong decision regarding the repo rate. my opinion is that economic models are important and absolutely necessary aids. they organise ideas and ensure that we have consistency in our analysis of inflation, production, interest rates, employment and so on. the models also help to identify weaknesses in one ’ s reasoning. the riksbank has sophisticated models that provide good forecasts in themselves, but that also allow us to “ experiment ” with different repo rate paths and examine potential scenarios. without these possibilities the preparation process would not function as smoothly as it does now. but of course this does not mean that we merely push a button, lean back and buy exactly what the models come up with. this is not how monetary policy decisions are made. and i don ’ t believe anyone would claim this was a good way of making these decisions. however good and sophisticated the models are, they are nevertheless simplifications of reality. they must therefore always be supplemented with judgements. the forecasts in our main scenario are always based on a combination of model analyses and judgements that take into account factors which the models either cannot capture at all or are unable to capture in a way we consider reasonable. these “ hands - on ” adjustments become particularly important when the historical correlations on which the models are based appear to have changed. the judgements may be of different types and opinion may be divided as to which factors are most important to take into consideration at any given meeting. my view is that the judgements should as far as possible be reflected in the forecast figures for inflation, the real economy and the repo rate that a monetary policy decision is based on. but i believe that we must learn to live with the fact that it is impossible to quantify all of the factors we monetary policy decision - makers consider should be taken into account in the monetary policy decisions. as i see it, there is no point in trying to produce, at any cost, a quantified adjustment of the forecast just to