the interest rate on inflation, the less monetary policy should react when inflation deviates from the target. within the framework of ramses it is possible to place in order of preference different monetary - policy alternatives in figures, based on their average squared deviations from the targets for inflation and resource utilisation during the forecast period ( see figure 13 ). 24 these figures, unlike the fan charts shown earlier, do not report the uncertainty. goodhart and rochet point out in their evaluation that the construction with mean squared deviations has its limitations, as it focuses on central expected outcomes and thus overestimates the certainty in comparisons of alternative outcomes and that the figures should be accompanied by fan charts that show the probability intervals for both production and inflation. 25 i consider it important to calculate and report the uncertainty in the comparisons, if this type of figure is going to be used to a greater extent. see the article “ evaluation of different monetary policy alternatives ” in monetary policy report, october 2009. op. cit., p 66. bis central bankers ’ speeches develop the models so they can process different repo - rate paths we should develop our models so that they can process different repo - rate paths. one problem with regard to the base for monetary policy decisions is that the ramses model can only process one repo - rate path. it cannot handle a situation where the riksbank ’ s repo - rate path differs from the market ’ s repo - rate path. the repo - rate path used in a forecast with the ramses model also implicitly determines the current longer - term interest rates along the entire yield curve, and these may differ from the interest rates currently observed in the market. this means that problems arise with regard to analysing developments, when the riksbank ’ s repo - rate path differs from the market ’ s repo - rate path. further development of the model would improve the base for monetary policy decisions. i think that monetary policy can best be understood in terms of the yield curve. the riksbank implements its monetary policy by determining the repo rate, the interest rate the banks face when depositing money in accounts with the riksbank overnight, or when borrowing money overnight. thus, the riksbank determines the short end of the yield curve. but the market determines the long end. everything in between is a combination of the riksbank ’ s influence and market forces. the long end is affected by many

##man, “ an indicator of resource utilisation ”, economic commentary no. 4, 2010, sveriges riksbank. the figure is based on quarterly data for the period 1997 – 2008 with regard to resource utilisation and a further 12 quarters ahead and back in time with regard to inflation ( including the forecast for the fourth quarter of 2011 ). see, for example, f. giavazzi and f. s. mishkin, “ an evaluation of monetary policy in sweden between 1995 and 2005 ”, sveriges riksdag, november 2006. see, for example, the above - referred to goodhart and rochet and also m. woodford, “ inflation targeting and financial stability ”, speech at the conference “ the future of central banking ”, in rome, september 2010. bis central bankers ’ speeches focus on the repo rate over the coming six months correspondingly, we should concentrate on assessing the repo rate in the coming period, as there is such great uncertainty over the repo rate in the longer run. the riksbank sets the repo rate. this means that we normally have a fairly good idea of the repo rate level over the coming period, although the situation can sometimes change rapidly and radically as it did in autumn 2008. market expectations prior to a monetary policy meeting also normally agree with the decision we make regarding the repo rate. any surprises in the actual decision on the repo rate are normally very minor ( see figure 12 ). however, there is great uncertainty over the repo rate in the longer run. this is illustrated by the fan chart showing the repo rate. whether the repo rate path will agree with the forecast will of course depend on how the economy develops in the future. if inflation and resource utilisation develop in line with the main scenario, the repo rate should follow the repo - rate path outlined in the main scenario ( the middle line in the figure ). however, the uncertainty regarding the way the economy will develop leads to uncertainty over the future interest rate, too, which is reflected in the fan around the repo - rate path. my impression is that there is normally very little opportunity to influence market expectations further than six months ahead by publishing a repo - rate path. goodhart and rochet also show in their evaluation that it is the riksbank ’ s repo - rate path that adjusts to market rates rather than vice versa, except in the