year horizon for monetary policy because this is considered to give sufficient scope in most cases to ensure acceptable developments in the real economy. however, the exact rate at which inflation should be brought back on target within this horizon will of course depend on the shocks the economy has suffered 4. sometimes the deviations from target can be so large that there is reason to allow inflation to return to target beyond the normal two - year horizon. in these cases, we shall explain this clearly in connection with our decisions. these thoughts on how to take into account developments in the real economy are of course not unique to the riksbank. although the formal guidelines may vary slightly from country to country, i believe it is correct to say that all central banks with an inflation target conduct flexible inflation targeting, that is, they give some consideration to real economic activity. in other words, we are not " inflation nutters ” to borrow mervyn king ’ s famous expression. our aim is not in all situations to bring inflation back on target as quickly as possible and at any cost. at the same time, flexibility is part of the strategy that has gradually changed during the period with an inflation target. this is only natural as this type of flexible application of monetary policy assumes that there is considerable confidence in the inflation target – confidence that must first be won. immediately after the inflation target was introduced in 1993 the riksbank ’ s rhetoric and probably the actual policy were most strongly focussed on the development of inflation. the underlying factor behind this was probably concern over credibility problems. however, from the mid - 1990s stabilisation of the real economy has increased in scope and the riksbank has in various ways made clear that we give consideration to developments in the real economy. this was, for instance, one of the main points in the brochure " monetary policy in sweden ”, which we published in may 5. see lars heikensten ’ s speech, ” thoughts on how to develop the riksbank ’ s monetary policy work ”, at the swedish economics association on 22 february 2005. see, for example, apel, m. et al, ( 1999 ), ” different ways of conducting inflation targeting – theory and practice ”, sveriges riksbank quarterly review, 1999 : 4, 13 - 42, svensson, l. ( 1997 ), ” inflation forecast targeting : implementing and monitoring inflation targets ”, european economic review, 41, 1111 - 1146, and batini,

the 1970s. the value of independence how can one then construct a framework for monetary policy that provides the central bank with the best possible conditions to carry out its tasks? here i intend to be fairly brief as this is something that will be discussed in more detail in the next contribution to this conference. let me just note that there is currently general agreement that the central bank should be given the opportunity to work independent of the political system in order to attain the objective of price stability. it has been observed that if monetary policy is conducted at arm ’ s length from party politics, there is greater confidence in the price stability objective. this is linked to the fact that there has often been a tendency for politicians to use monetary policy for more short - term purposes which have conflicted with the long - term price stability objective and which have often entailed loosening the nominal anchor. making the central bank independent is probably the element of the past decades ’ monetary reform process that has triggered the most debate and has been perceived as the most controversial. it is probably natural for politicians to feel uncomfortable giving the central bank increased independence as it unavoidably means that they give up some of their decision - making powers, and moreover in a field perceived to be central. i assume that this is one explanation why, for instance, it took sweden until 1999 before there was sufficient political support to grant the riksbank increased formal independence and to confirm by law the price stability objective, despite the fact that these reforms had been proposed when the inflation target was introduced in 1993. however, the concern among politicians over making central banks independent is quite unwarranted. the independence does not, of course, mean that the central bank is free to conduct any monetary policy they wish ; it only means that it should be able to use the means at its disposal to meet the objectives set by the political system without outside intervention. this is usually expressed as the central bank being instrument independent but not goal independent. the delegation of powers should be regarded as a means for politicians to ensure that the long - term aim of the monetary policy that they endeavour to achieve – but have difficulty guaranteeing – can become a reality. furthermore, a natural consequence of the independence is that the central bank shall be accountable for its actions and that monetary policy shall be conducted in a transparent manner 7. it is interesting to note that, despite fairly substantial initial doubts, people have afterwards been very satisfied with the reforms implemented. monetary policy therefore appears to have essentially delivered