When does an interest rate path “look good”? Criteria for an appropriate future interest rate path
AbstractSvensson (2004) suggested that a monetary policy committee of a central bank (MPC) should “find an instrument-rate path such that projections of inflation and output gap ‘look good’.” Academic literature on monetary policy gives guidance as to what the words “look good” means. However, there is a need for a translation of the theoretical framework into concrete criteria when an MPC shall evaluate interest rate paths in practice. Six criteria for an appropri-ate interest rate path are presented. In the November 2005 Inflation Report, Norges Bank presented for the first time an optimal interest rate path including a fan chart illustrating the uncertainty of the forecast using these criteria. Ex-amples used in explaining the criteria are drawn from Norwegian experiences.
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Bibliographic InfoPaper provided by Norges Bank in its series Working Paper with number 2006/05.
Length: 20 pages
Date of creation: 09 May 2006
Date of revision:
Forecasts; flexible inflation targeting; optimal monetary policy;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-05-13 (All new papers)
- NEP-CBA-2006-05-13 (Central Banking)
- NEP-FOR-2006-05-13 (Forecasting)
- NEP-MAC-2006-05-13 (Macroeconomics)
- NEP-MON-2006-05-13 (Monetary Economics)
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