as we at the riksbank did a couple of years ago. it is thus essential that monetary policy is evaluated and discussed. this applies both to the principles behind monetary policy and to how well we succeed in meeting our objective. to make this possible there must be a clear basis for the decision. it must be clearly shown which principles we have based our monetary policy decisions on and what information our conclusions are based on. as monetary policy affects the economy with some time lag, the monetary policy decisions must be based on forecasts, as i mentioned at the start. good bases for decisions in the form of accurate forecasts are thus an important factor in the success of monetary policy. but future developments in inflation and other variables are uncertain. for one thing, there is the uncertainty linked to the statistical methods and models, as certain fundamental parameters vary over time. for another thing, there are a number of other factors that can affect inflation in a way that is very difficult to predict. for instance, increased geopolitical unease can push up the oil prices, or an unexpected outbreak of a disease among animals can lead to a rapid rise in food prices. when central banks make forecasts, it is therefore increasingly common that they put a band around the forecasts that measures their uncertainty. these bands help provide information about the uncertainty in the forecasts and also make it easier to communicate the monetary policy alternatives that may arise in the future. but what do we know about the forecasting performance of the riksbank? forecasting performance is evaluated both internally and externally forecasting performance can be evaluated in many different ways. there are a number of statistical methods that can be used to analyse how accurate the forecasts are. one means of measuring accuracy is to compare the forecasts with outcomes. the problem is that one doesn ’ t know whether a forecasting error is due to the forecasting method being inadequate, or to something genuinely unpredictable. it is therefore common to compare accuracy with forecasts from simple time series models to gain a perspective on whether the forecasting errors are unusually large or small. we have made a number of evaluations of our own forecasting performance and we have also been evaluated by external experts. in recent years, we ourselves evaluated some of the models used in the forecasting work. various types of model are used in the forecasting work to produce the best possible base for an assessment of economic developments. a study that will soon be published has investigated the forecasting precision of our

also like to emphasise that our management of the risk of an adverse development in house prices and household indebtedness does not in any way mean that we consider that these aspects see also tucker, p., ( 2006 ), " reflections on operating inflation targeting ”, bank of england quarterly bulletin : summer 2006. have greater relevance for what is regarded as desirable monetary policy than, for instance, the situation in the labour market. from time to time situations will arise where we will need to take into account, in a different way than the usual, the risks of adverse economic developments that are difficult to quantify. recently this has been house prices and household indebtedness, but in the future it could be other variables. this is an important dimension of the flexibility in our inflation - targeting policy. the current situation let me conclude with a few comments on our most recent monetary policy decision. a more detailed account is provided in the separate minutes of the monetary policy meeting, which were published the day before yesterday. we chose at our monetary policy meeting on 29 august to raise the repo rate by 0. 25 percentage points. now that we have chosen to conduct less expansionary monetary policy, this is because we have made the assessment that it is necessary to avoid inflation being above target a couple of years ahead, while at the same time it contributes to a balanced development in the real economy. the increase in the repo rate is in line with the repo rate path expected by the market and which was used as a basis for the inflation forecast. on the one hand, the high gdp growth indicates that inflation could rise more quickly in future than we assumed in june. but on the other hand, productivity has been slightly stronger than expected, which has contributed to holding back cost developments and the rate of increase in unit labour costs. this has a dampening effect on inflation. however, there are indications that the labour market is beginning to strengthen, which should contribute to rising cost pressures. our overall assessment was that inflation will increase and will be in line with the target a couple of years ahead, given that the repo rate is increased approximately in line with market expectations. our assessment at the monetary policy meeting was that the upside risks and downside risks were roughly equal. among the upside risks we mentioned were higher energy, oil and electricity prices, with a risk of contagion effects and a higher rate of wage increase following on from good growth in the economy. the downside risks included