Changes in the monetary policy framework? Håkan Frisén, Head of Economic Forecasting
Last year the Federal Reserve changed its monetary policy principles. The Fed is now prepared to accept inflation a bit above its 2 per cent target in order to compensate for its previous bias against undershooting the target. This also means that the central bank is really prepared to test how hot the US labour market can become before harmful overheating problems emerge. Reviews of monetary policy frameworks are currently underway in various other countries, and the question is what inspiration the Fed can provide. The EU Treaty imposes some restrictions on the ability of the European Central Bank (ECB) to follow in the footsteps of the Fed, but the ECB can at least make its inflation target more symmetrical. Sweden’s Riksbank also has limited room for manoeuvre, but it must still try to find its own ways to prevent inflation expectations from distancing themselves too far from the 2 per cen