of the swedish economy further ahead would be even worse if high inflation were allowed to become entrenched – we know this from experiences both in sweden and in other countries. the question is not, therefore, whether inflation will return to the target, but how it will happen, and how the swedish economy will develop during this process. it can be painful, but it can also be relatively smooth. 9 for a more detailed discussion, see jansson ( 2020 ). 8 how well the swedish economy in general develops depends on the interaction between different agents. this is an insight that i think has become somewhat neglected, and that was the reason for the speech i held a year ago on the division of roles between fiscal and monetary policy. but it is not just a question of the macroeconomic policy mix. it is about a broader interaction, involving many economic agents. let me describe how inflation can be brought back to the target in a favourable scenario. in principle, it is the riksbank ’ s current forecast that i am describing, but without numbers and in more general terms. the increases in the policy rate that the riksbank has made, and expects to make, contribute to the fact that inflation will start to decline in 2023. also contributing to this is that factors causing restrictions on supply, and temporarily pushing up commodity prices, are fading away, and that international inflation is being curbed by central banks raising their policy rates. the economic agents trust that the high inflation rate is temporary and will return to the target fairly soon. the longer - term inflation expectations will thus remain anchored at 2 per cent. wage increases and the industrial agreement benchmark are based on the assumption that the inflation target will continue to apply in the future, despite the temporary rise in inflation. companies are refraining from excessive price increases, which risk giving rise to compensatory wage increases that increase their costs, and which force the riksbank to raise the policy rate further, which will drive their costs up even more. in turn, fiscal policy focuses on targeted support to households and companies that suffer particularly badly in the poorer times that can hardly be avoided going forward. in such a scenario, the inflation target will be able to continue to provide a basis for a long - term favourable development in the swedish economy, without very large policy rate hikes by the riksbank ( figure 6 ). in a bad scenario, the opposite happens. interest rate hikes will be insufficient and economic agents start to doubt

the riksbank, and not as something which agents in general should support, can be problematic. this was evident during the long period when the riksbank ’ s policy rate was close to the lower bound, and the riksbank also supplemented its policy with other measures such as asset purchases, but it was nevertheless difficult to bring inflation up to the target. this was not a specifically swedish phenomenon, but a problem that many advanced countries wrestled with. monetary policy in isolation was simply not enough. it needed support from other policy areas and agents, who, whether they like it or not, also play a role in the development of inflation. and although we now have well - designed frameworks in place for different policy areas, this in itself is not always sufficient to ensure a good economic outcome – the frameworks must also work together and result in a meaningful whole. a lot has certainly changed in a year. inflation has risen substantially around the world, and central banks have raised their policy rates quickly and quite a lot. the problems with the lower bound for the policy rates and too low inflation have therefore disappeared from the agenda at the moment. however, as i have noted, it is far from clear that the global economic playing field has changed in any profound way in the longer run. above all, there is a great deal to suggest that the global real equilibrium interest rate remains at a historically low level. it is therefore possible, perhaps even likely, that these problems will reappear in a few years ’ time. but perhaps my most important message today is that there is a need for interaction between different agents in the economy also when inflation is too high, as it is today. it is true that the policy rate is not restricted upwards in the way that it is downwards – it can be raised without it hitting any ceiling. but even if there is no such restriction on raising the policy rate, the problems gradually increase the higher the policy rate has to be raised to bring inflation back to the target. it is therefore not a question of whether inflation will be able to reach the target at all, but of how large the cost will be for the swedish economy in the short term to attain this. the better the interaction, the smoother the slowdown in inflation will be. 10 if we really see the inflation target as a macroeconomic target that provides favourable prerequisites for a good long - term economic development, such interaction should be both possible and desirable to achieve. references aucle