’ s increase in inflation, it was not the supply shocks that prompted the decision in march to raise the repo rate but the picture that was beginning to emerge of the swedish economy being rather close to or even somewhat above full resource utilisation. this may be a major problem, not for current inflation but rather for future inflation as activity continues to strengthen. conclusion i began by considering whether the problems associated with making forecasts for the riksbank ’ s current policy of targeting inflation could be avoided by changing to a different strategy. what i have said hopefully shows that this does not seem to be the case, at least with the knowledge that is available today. a less forward - looking policy, based for example on outcome data or forecasts that only illuminate the near future, would be liable to have destabilising effects on the real economy. even a policy based on the money supply is dependent on forecasts of resource utilisation ; it, too, can have destabilising consequences if the correlation between the intermediate variable and the ultimate objective breaks down. neither would it be realistic or even appropriate to have a strategy whereby monetary policy is determined by automatic and mechanical rules ; in the worst case, the simplicity of such a strategy can lead to unduly large fluctuations in both inflation and gdp. i therefore conclude that the problems connected with forecasting inflation cannot be avoided by choosing a different monetary strategy, at least with the present state of knowledge. as i see it, the problems with forecasts are manageable and relatively slight compared with the regime ’ s advantages in other respects. as the discussion has also shown, most monetary strategies have drawbacks as well as advantages. most people will no doubt agree when i say that on the whole, sweden ’ s experience of targeting inflation is favourable but of course that does not mean that we can rest content or smug. we do not claim to have found the ultimate monetary strategy. but by being transparent about the information on which our monetary policy is based and by being prepared to discuss the policy ’ s formation, the riksbank can offer a guided tour of the complex world in which we live and are constantly learning new things. so when we wake up each morning, let us ponder a while on the mistakes we may have made and do not yet understand. however, since the world and its inhabitants do not behave in a mechanical and rigid fashion, one cannot expect monetary policy to be perfect. monetary policy is not an exact science

the economy. another similarity is the medium - term perspective rather than short - term activism. this in turn calls for a forward - looking perspective when the instrumental rate is set. a further resemblance is that in the riksbank ’ s strategy, monetary policy reacts systematically, though neither automatically nor mechanically ; this helps households and firms to base their expectations of inflation on a monetary policy that is predictable. we have followed our rule of action relatively closely, as is evident from diagram 1. 1. actual and estimated repo rate estimates with a simple forecast - based rule it = 1. 29 + 0. 66it - 1 + 0. 50 ( πft, 1 – 2 ) + 0. 26 ( πft, 2 – 2 ) + et source : the riksbank diagram 1, published in our latest inflation report, shows the actual path of the repo rate and estimations obtained with a simple forecast - based rule. it seems that on the whole, our actions can be explained fairly well by applying an equation based on the riksbank ’ s own series of forecasts of inflation one to two years ahead plus a term for the repo rate ’ s “ inertia ”. considering the rule ’ s simplicity, the deviations from it must be said to be small. the diagram accordingly shows that the riksbank ’ s actions have been reasonably systematic and based on the bank ’ s inflation forecasts. it is, of course, too early for a more thorough evaluation of explicit inflation targeting regimes compared with other monetary policy strategies. it is also the case that taylor rules, albeit in a somewhat modified form, likewise give comparatively good explanations for a number of central banks that have not explicitly adopted an inflation target, for example deutsche bundesbank and the u. s. federal reserve. thus, there are similarities between the strategies of these central banks and inflation targeting regimes. if the differences are greater rhetorically than in practice, it is therefore difficult to establish that one of the arrangements has performed better or worse than the others. diagram 2 presents the variations in growth and inflation for a number of industrialised countries in two periods. one is the years from 1970 to 1990, when central bank policy – except in germany and switzerland – tended to concentrate excessively on stabilising employment and demand instead of aiming to maintain price stability in the medium term. in a majority of these countries the transition to a stability - oriented monetary policy had at least not been completed. by the time