Interview: Lars Svensson Why Do You Favour Inflation Targetting? What Distinguishes It from Other Frameworks of Monetary-policy Making? How Successful as a Monetary Policy Framework Has Inflation Targetting Been?

The most obvious characteristic of inflation targetting is an explicit numerical inflation target. There is also a logical and efficient decision process, which I have called forecast targetting. The central bank makes forecasts of inflation and other variables, such as the output gap, and then chooses the interest rate so that these forecasts “look good”, that is, are consistent with the objective. There is more transparency about monetary policy, which both makes the implementation more effective and the central bank more accountable. Some think that inflation targetting means that inflation equal to target is the only objective, “strict” inflation targetting, and that the objective must be met at a specific, rather short horizon. That is not correct. Inflation targetting is in practice “flexible” inflation targetting; meaning that the central bank is also concerned with the real economy and stability of the output gap, for instance.