interest rate decision. material for each board meeting is prepared by the monetary policy department, where some forty economists are involved in various ways. starting from this material, the board members endeavour to arrive at a joint view of economic developments and inflation. by and large, we follow the structure of chapter 2 in the report and start with international prospects. our opinions naturally differ on some things, large as well as small, as can be seen, for example, from the published minutes of the meetings. but an effort has always been made to arrive at a joint view and in this we have generally succeeded. i want to underscore that this is a balancing act. it is important that different perspectives are compared and as many difficult questions as possible are discussed. but it is also desirable that we ultimately arrive at something of a consensus. in the longer run it would hardly be good for the riksbank to publish six different inflation reports, which in a way would be the logical outcome of carrying the board members ’ individual responsibility to an extreme. this raises the issue of what the inflation report stands for. the board ’ s decision that it represents a majority view enables us to compile a clear and consistent presentation. the bank of england has a different procedure that aims to present different views in a single report. the material produced in the monetary policy department is distributed simultaneously to all the board members to make their conditions as similar as possible. as the member responsible for monetary policy preparations, i am in a position to influence discussions and decisions, apart from those at board meetings, mainly as chairman of the internal monetary policy group that is made up of leading members of the bank ’ s competent departments. matters on the monetary policy agenda are discussed by this group on a continuous basis. in the light of that discussion, at board meetings i also present proposals about the direction of policy. however, all the members of the group attend board meetings and are able to present their own views. the arrangements we have chosen for internal discussions and preparations build on experiences at other central banks. a proposal for the approach we have used since autumn 1999 was drafted by some of us after talks with colleagues at the bank of england, the bundesbank and the federal reserve. there are some important differences, however. the officials who prepare the board ’ s material are in a stronger position compared with other central banks. we ask them to produce a comprehensive assessment of inflation independently, whereas in the bank of england, for instance, the counterpart to our

for monetary measures to affect inflation. some effects of an interest rate adjustment may indeed occur very quickly. the stock market, for instance, is influenced as soon as an adjustment is announced and this can have immediate consequences for household consumption, for example, and thereby a quick impact on certain prices. monetary policy can also elicit exchange rate movements and quickly affect prices for exports and imports. normally, however, there is a time lag between monetary measures and their effects. for example, an interest rate hike leaves households with less money for other expenditure and also reduces the return on investments. by gradually influencing consumption and investment, this leads in time to changes in total demand. with weaker demand, firms then have more difficulty in raising prices and that leads to lower inflation. interest rate adjustments accordingly affect inflation through a variety of channels that economists refer to as the transmission mechanism. we know more about some channels than we do about others. it is not clear just how long it takes for the effects to materialise. calculations by the riksbank and other central banks suggest that a reasonable time perspective when formulating monetary policy is the coming twelve to twenty - four months. our simple rule of action is accordingly that if inflation one to two years ahead looks like being above the target, then normally the repo rate should be raised and vice versa. but we also attach some importance to our policy ’ s effects before as well as after this time horizon. in view of the uncertainty in this respect, some differences of opinion — in our executive board as well as in the public debate — as to what policy ’ s time perspective should be are only natural. if it is feared that inflation will, for instance, shoot up beyond the target horizon, then there may be grounds for acting particularly early. in my opinion, however, the clear target horizon has stood us in good stead in recent years. it has made policy easier to understand and foresee. it has also been beneficial internally by forcing us to be specific and have good arguments for departing from the rule of action. there have, moreover, been a number of occasions when our ideas about prospects in the longer run were faulted by new developments. one example is when rising activity and inflation in 1997 – 98 were broken by the asian crisis and the associated fall in international prices. today, when rising domestic resource utilisation is beginning to slacken in response to developments in the united states and falling stock markets, the element of uncertainty in our work is highlighted again