utilisation around a normal level. the question then is which measures of the two target variables, inflation and resource utilisation, we should use. although the inflation target is expressed in terms of the cpi, i believe that the most appropriate operational measure of inflation is the cpif. i also believe that the most appropriate measure of resource utilisation is the unemployment gap ; that is the gap between the actual rate of unemployment and the sustainable rate of unemployment. let me explain why i think that the existing framework for monetary policy could be improved with these specifications. the cpif is the most appropriate operational measure of inflation the riksbank ’ s inflation target is expressed in terms of the rate of change in the consumer price index, the cpi. this has advantages as it is measured often and is seldom revised. it also means something to consumers as it corresponds to the price of an average basket of consumer goods. the cpi is also the measure of inflation that is most well - known to the general public. however, the cpi also has a well - known disadvantage, which in my opinion makes it less appropriate as a direct, operational target for monetary policy. this disadvantage is that the cpi is directly affected by interest rate changes through their impact on housing costs. this short - term effect also has the reverse sign to the medium - term effect. this means that the riksbank ’ s own repo rate increases contribute to an increase in cpi inflation in the short term but reduce it in the slightly longer term. the major interest rate changes during the crisis have led to considerable fluctuations in the cpi. i believe on the whole that it is better to consistently use the cpif as an operational target for monetary policy and disregard the direct effects of interest rate changes on the cpi when assessing whether monetary policy is well - balanced. by stabilising the cpif around 2 per cent, the cpi will be stabilised around the target in the slightly longer term. it would then be important to consistently use the cpif to rank various monetary policy alternatives and not change back and forth between the cpif and the cpi. if we sometimes refer to the cpif and sometimes to the cpi, monetary policy will become unclear. the unemployment gap is the most appropriate measure of resource utilisation there are many ways of measuring resource utilisation, for example the output gap, the hours - worked gap, the employment gap, capacity utilisation or the riksbank ’ s ru indicator. as there are so

how can the estimates and forecasts for potential gdp in the united states and sweden differ so greatly while the level now and forecasts for actual gdp are rather similar? why should the development of sweden ’ s potential gdp be much worse than that of the united states? the united states has been subjected to structural shocks in the housing, construction and finance sectors and has major structural problems in these sectors. the united states also has substantial structural current account and budget deficits. sweden has been exposed to a major demand shock with a collapse of exports and a loss of demand in the export sector. exports are now recovering again. sweden does not appear to have any structural problems in the finance sector, or in any other sector, and has no structural budget or current account deficits. this being the case, i think one could claim that the development of sweden ’ s potential gdp should in fact be better than that of the united states, not worse. the difference in potential gdp underlines the difficulties and the element of arbitrariness in these calculations. figure 6 compares the riksbank ’ s estimates and forecasts for potential gdp from two different points in time, namely september 2008 shortly before the investment bank lehman brothers went bankrupt and february 2011. the september 2008 forecast for sweden ’ s potential gdp is rather similar to the cbo ’ s latest forecast for potential gdp in the united states in figure 5. we can see in figure 6 that the february 2011 assessment of potential gdp in the longer term is approximately 4 per cent below the corresponding assessment in september 2008. why should a pure demand shock in the absence of structural problems lead to such a significantly lower potential gdp in the longer term? my conclusion from this discussion of figures 5 and 6 is that the estimate of sweden ’ s potential gdp is not reliable and that the output gap is thus not a reliable indicator of resource utilisation. the federal reserve bank of san francisco has a forecast for the potential gdp of the united states that is very similar to the cbo ’ s forecast, see rudebusch ( 2011 ). the figure shows the riksbank ’ s forecast for the united states ’ gdp, but it is very similar to the cbo ’ s forecast for the united states gdp. bis central bankers ’ speeches i believe instead that the unemployment gap is the most appropriate measure of resource utilisation. there are several reasons for this. unemployment is measured often and is not revised. gdp on the other hand is measured less often and is highly