who point to the ecb variant of pragmatism, as well as by those who think the interest rate should be lower and who see the fed's pragmatism as their ideal. this is a debate which in essence is based on misunderstandings. the constraints within which the riksbank works, allow a monetary policy which is both flexible and pragmatic. we can certainly extend our target horizon, monitor risks of problems in the financial sector or act early in order to avoid major subsidence in the economy further ahead. but this places requirements on us to motivate our actions clearly and substantially. it is, therefore, in this context – by setting very high standards as regards clarity and openness – that we beg to differ. in essence, i think that demands made on us that we should be more pragmatic in some general way – and not keep to our way of reasoning with a target, with guidelines, etc. – are meaningless. less clear principles for policy in combination with reduced transparency regarding, for example, the reasons for making decisions, will hardly lead to a policy which will be more successful in the future. many years'experience in the vicinity of economic policymakers suggests to me that the opposite is more probable. among the most important things one can do in this type of work is to try to build up clear processes which contribute to decision data, based on good economic analyses, being produced in a systematic way. and that this decision data is subjected to as wide an examination as possible. i am convinced that our ambition to be as clear and open as possible has served us well. starting with a numerical, symmetric objective and a guiding rule, in the way that we have done, we have been forced to think through every question with which we have been confronted in a more precise manner. this has resulted in our gradually increasing our understanding in a way which i think would hardly have been possible otherwise. certainly it is not yet over, and in this context, future developments will place new demands on us and impose further intensification and exactitudes. there is also a connection between transparency in relation to the outside world on the one hand, and internal work on the other. in getting rid of secrecy we were able to introduce a more realistic debate on monetary policy. this has allowed sharper and more specific criticism from outside, something on which we thrive. in addition, i think that decision making should be made in a way which contributes to

difficult to see any really good alternative to this way of doing things. experience of trying actively to guide the exchange rate towards some given level has not been particularly promising. in this context it is worth pointing out that the central bank which in many respects works most closely to the way we do – the bank of england – continually struggles with the opposite problem. that is, an exchange rate which is too strong. this is one indication that it is not primarily the way monetary policy is formulated which is the problem. during the first years of floating exchange rates, the riksbank used something called the monetary conditions index ( mci ). this was an attempt to show the combined effects of short - term interest rates and the krona on inflation. the underlying thought was that if the krona strengthened, interest rates could be lower and vice versa. this was something that the index could only illustrate roughly. the risk with such an index is that it can be interpreted too mechanically, as shown by experience from new zealand and elsewhere. when the exchange rate weakens it tends to be used as an argument for raising the interest rate. in this context, mci is a very good example of the risks of oversimplification in monetary policy. that which is of greatest importance as regards the exchange rate is precisely the same as with deregulations and asset prices – to evaluate each situation in the context of our objectives and our guiding principles. the important question is always why a certain movement in the exchange rate has occurred. if we know – and that is not always the case – we can perhaps say something about how long the movement might last. this can in turn guide us in how we use interest rates. there are central banks which now and again have to devote most of their communication to discussing the latest movements on the foreign exchange market. this is not something we should try to emulate. it is not the situation in which the riksbank finds itself nowadays. but this has not always been the case. it has taken us several years to become convinced that we should see the exchange rate primarily as one of several inflation indicators. i think we have every reason to keep to this approach. closing comments finally, let me give some general reflections on clarity and flexibility. it is sometimes asserted, with quite varying overtones, that the riksbank is much too restricted by principles. we should act more pragmatically. this is maintained by those who think we should have a higher interest rate and