cecilia skingsley : inflation - targeting after the financial crisis speech by ms cecilia skingsley, deputy governor of the sveriges riksbank, at almega ( employer and trade organisation for the swedish service sector ), stockholm, 22 may 2015. * * * accompanying charts can be found at the end of the speech. i would like to thank bjorn andersson and mikael apel for their help with this speech. this coming sunday is pentecost, “ the day of rejoicing ”, to quote esaias tegner. and it is certainly easy to rejoice at the season and see green shoots springing up, the result as tegner writes, of “ the friendly flames of the spring - sun ”, even in the economic statistics. for a long period of time now we have had a development where production and the labour market have been improving, but inflation has been too low. this has also affected expectations of inflation in the longer run. the riksbank has cut the repo rate and its forecast for the future repo rate to very low levels to bring up inflation, as well as purchasing government bonds to make monetary policy even more expansionary. it appears as though this policy has had an effect. but we are not home and dry yet, which is shown, for instance in the unexpectedly low inflation outcomes in april. it takes time until inflation is back at a level around the inflation target and there is still spare capacity in the economy and scope to increase activity further. the risks of a setback in economic activity should not be underestimated either. as we executive board members pointed out, we are always prepared to make monetary policy even more expansionary if we assess that the upturn in inflation is threatened. but even if the focus of the debate in sweden is now of necessity on current monetary policy, we must not lose sight of the longer perspective. there is a lively international debate on whether, and if so how, inflation targeting should be changed in the wake of the financial crisis and the ensuing period of a long - drawn out economic recession, very low inflation and very expansionary monetary policy. what do the past eight years mean for the functioning of the economy and for monetary policy? will we return to the way things looked before the financial crisis? it is important that we also take time in the swedish debate to focus on these fundamental issues so that the discussions of our own monetary policy framework remain well - informed and productive.

amortisation requirements have arisen recently, however, and it is important that they are resolved quickly. see, for instance, blanchard ( 2015 ). a survey of the debate is provided by, for instance, smets ( 2013 ). see, for instance, schularick and taylor ( 2012 ) and jorda, schularick and taylor ( 2013 ). bis central bankers ’ speeches this is not something that monetary policy should do. one argument was that it is too difficult to identify bubbles and that in practice it may make things even worse if one tries to counteract them. 4 the fact that the earlier consensus view is now up for discussion is of course due to the experiences from the financial crisis that show that the economic costs to society of financial imbalances can be substantial and that it is not so easy for monetary policy to “ clean up ” afterwards when the economy has suffered. the inflation target is still the foundation there are different ways of justifying why monetary policy should take financial stability into account. different arguments lead to slightly different conclusions regarding exactly how inflation - targeting should be adapted. should, for instance, financial stability be included as a new objective for monetary policy, together with price stability and macroeconomic stability? 5 or can the objectives, as before, apply to price stability and macroeconomic stability but with consideration to financial stability included in the prospects for these two quantities in the slightly longer run? 6 theoretically, there may thus be some differences between different ways of including consideration of financial stability in inflation - targeting. in practice, i do not think the differences are so large – regardless of the underlying reason, the results are in practice that monetary policy is slightly adjusted to counteract potential imbalances on the financial side of the economy. 7 it may be worth pointing this out : a monetary policy that “ leans against the wind ” in this way does not actually scrap the inflation target and swap it for a target for asset prices or indebtedness. the inflation target is still the foundation. what this means is that in some situations monetary policy can be adapted so that it takes slightly longer for inflation to get back to the target that it would have done otherwise if one had not taken financial stability into account. a necessary condition for being able to give such consideration is that confidence in the inflation target is firmly rooted and does not risk deteriorating because it takes somewhat longer for inflation to attain the target. a monetary policy that leans against the wind thus assumes that inflation expectations