they argue that inflation faces such strong ‘ headwinds ’ in the form, for example, of globalisation and digitalisation that it is doubtful whether central banks can steer inflation in any meaningful way. instead, it is argued, monetary policy should be focused on dampening financial cycles and maintaining financial stability. 1 on the other side are most central banks, who argue that rumours of inflation targeting ’ s imminent demise are significantly exaggerated. they admit that it has now become more difficult and more complicated to conduct monetary policy, when global real interest rates have fallen for a long time and are currently very low. this means that central banks ’ policy rates are likely to reach their lower bounds more often and that monetary policy will occasionally have to be conducted using other means than policy rate cuts. they also agree that digitalisation and globalisation are making it more difficult to reach inflation targets. but, it is argued, even if these complications must be managed, there is nothing to indicate that the inflation process should have changed so much and so fundamentally that inflation targets have become unobtainable and that inflation targeting as such would have to be fundamentally reassessed. financial times columnist gavyn davies has described this debate as an implicit ideological struggle between claudio borio, chief economist at the bank for international settlements ( bis ), perhaps the leading advocate of the new ideas, and the departing chair of the board of governors of the us federal reserve system, janet yellen, advocate of the traditional view. 2 there are good reasons for looking more closely into this debate. one is that it will probably be an important part of international monetary policy discussions in the years ahead. another is that the debate is not merely about practical monetary policy but in fact also about fundamental issues within economic science. the debate in sweden is ahead of the international debate there is reason to believe that the experiences we have had in sweden in recent years mean that we can make useful contributions to the international debate. for quite some time, we have had a discussion on the process of inflation and the conditions for inflation targeting, while this is a relatively new phenomenon in there is also a parallel debate on whether the inflation target should be replaced, for example, with a pricelevel target or a target for nominal gdp. however, i will not address this debate in this speech. 2 see davies ( 2017 ). for the sake of simplicity, i will adopt davies ’ terminology hereafter and refer to the two opinions as the ‘ borio camp ’ and the

at the end of 2014 ). this policy was considered compatible with a balanced resource utilisation in 2014 and a cpif inflation rate close to 2 per cent in 2013 – 2015. this forecast, which was representative of swedish forecasters, thus assumed that continued rate hikes would be justified for normal economic reasons. 11 for an analysis of the factors that contributed towards this low inflation, see andersson, corbo and lof ( 2015 ). 5 but it is not particularly meaningful to evaluate events with the benefit of hindsight. for it to be meaningful, it has to be possible to identify things that could be done differently in a similar situation in the future. for example, there is no real point in observing that we would have acted differently if we had managed to predict the debt crisis in europe and its effects. it is highly likely that, in the future, this type of event will be more or less just as difficult to predict. however, one experience that i believe we should take with us concerns our monetary policy communication. much of our communication at this time was about pointing out risks connected to the development of debts and housing prices, in particular during the period in which we had again started to cut the repo rate. even if we still expected to reach the inflation target, it could well be that we talked too little about the target and too much about financial imbalances. this may have created uncertainty among economic agents regarding the status of the inflation target, which may, in turn, have contributed towards inflation expectations falling. this is something worth bearing in mind going forward. the problem was possibly also exacerbated by the riksbank's critics often exaggerating the significance to monetary policy of the development of debt and housing prices. a deeper question concerning keeping inflation in sight is whether confidence in the inflation target is really so important. would it not be possible to conduct monetary policy without there being confidence in the inflation target – or, for that matter, without there being any inflation target at all? why is it not possible for monetary policy merely to stabilise the real economy or lean against the wind? such a monetary policy arrangement would be well in line with the new thinking in the international debate that i presented in my introduction, in particular if this were to be taken to its logical conclusion. 12 i intend to return to this debate soon, so let me put this issue to one side for a moment. conclusion ( ii ) : fairly significant interest rate rises