be formulated in the event of different shocks. future developments will no doubt exact additional requirements. almost every time a new policy decision is at hand, any new information - on oil prices, taxes and price tendencies, for instance - has to be related to the intellectual framework we have gradually built up. as i mentioned earlier, in the next inflation report we intend to include a section on inflation in the somewhat longer run. we are also thinking of publishing probability assessments not just of forecast inflation but also of forecast growth. the approach we have chosen has a number of advantages. in that the inflation assessments are published, we are forced systematically to appraise all the relevant information about future price tendencies. this is done in internal processes, with our staff playing a decisive role initially, after which the executive board is free to discuss the material that has been prepared. there are other strong reasons why the riksbank should be open. as i mentioned earlier, it means we have had to tighten the analysis. it also makes it easier to follow what we do and enforce various forms of accountability. in the public debate it is sometimes argued that we are too bound by our established principles. i hope it is clear from what i have already said that that is not the case. we are free to extend the target horizon, take any risks of problems in the financial sector into account or take timely action to avoid a marked economic slowdown further ahead. but before doing so, we require good, clear grounds for our actions that really will stand up to scrutiny. i am sometimes exhorted to be more pragmatic and less tied down by our intellectual framework. the us federal reserve is often cited as a good example. that is a little surprising, mainly because in the united states the academic discussion advocates the opposite - that a clearer target for price stability would perhaps be preferable. the background here is that the policy is currently associated so strongly with a single person, alan greenspan, and there is concern about what will happen after him. to me, proposals of this kind about a more pragmatic policy seem rather naive. policy principles that are less clear - cut, combined with a less transparent basis for decisions, by no means guarantee a successful policy in the longer run. just the reverse, i would say in the light of many years of decision - making in economic policy. one of the most important things to do in work of this type is try to build up distinct processes whereby a foundation for decisions based

for monetary policy it is therefore crucial that confidence in the low - inflation regime is strong. the construction of the inflation target automatically involves some allowance for economic activity. weaker growth that leads to a capacity surplus normally implies diminishing inflationary pressure from demand. this in turn leaves room for a more expansionary monetary stance : the interest rate is lowered, thereby stimulating demand. conversely, unduly high demand involves a risk of excessively high capacity utilisation, with upward pressure on prices and wages. to prevent this, the monetary stance has to be tightened by raising the interest rate. in this way, the riksbank ’ s endeavour to fulfil the inflation target normally contributes to economic stabilisation. there are, however, situations in which this relationship does not apply. one case is when inflation is being driven from the supply side, for example because an isolated oil price rise is pushing prices up. there may then be grounds for accepting a temporary increase in the price level instead of acting swiftly to push inflation down. unnecessary fluctuations in the real economy can then be avoided. as i mentioned earlier, the riksbank has therefore clarified that if higher or lower inflation is judged to be a transitory phenomenon, attempts to counter it immediately and fully are sometimes not desirable. from these clarifications it will be clear that in the conduct of monetary policy we do in fact also take the real economic consequences directly into account. it should be underscored, however, that making allowances of this kind does presuppose a basic confidence in monetary policy - that different economic agents count on our fulfilling the inflation target, if not immediately then at least in the near future. there has been a discussion recently, among economists as well as in the public debate, as to whether the interest rate should be raised already even though a threat to the inflation target is not apparent in the coming two years. in that way we could avoid a build - up of imbalances that in the longer run might necessitate a drastic repo rate increase and thereby expose the real economy to major strains. i have no objections to this view in principle. we can indeed take such matters into account in our intellectual framework. it is important, however, to be clear about which imbalances one is referring to and what real economic effects they might have. it should also be borne in mind that the rule of action with a two - year horizon should normally give us enough time in which to act