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The Tyranny of the Tenths. The Rise and Gradual Fall of Forward Guidance in Sweden 2007-2018

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Abstract

This paper examines the Swedish experience of forward guidance 2007-2018. We focus on three interrelated issues: first, the effects of forward guidance on the discussion within the Board of Directors of the Riksbank, second, on the communication between the Riksbank and the public, and third, on the interest rate expectations held by various groups in Swedish society. We conclude that forward guidance has had negative effects on the dialogue within the Board as well on the communication between the Riksbank and the public. In addition, forward guidance has failed to affect expectations about interest rates in a systematic and significant way. We trace the roots of these consequences to the inability of the Riksbank to forecast its future policy rate three years ahead with any reasonable accuracy. The Riksbank has learned from this dismal performance and partially abandoned forward guidance, returning to a focus on the rate of inflation – as it did prior to the introduction of forward guidance.

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  • Andersson, Fredrik N. G. & Jonung, Lars, 2019. "The Tyranny of the Tenths. The Rise and Gradual Fall of Forward Guidance in Sweden 2007-2018," Working Papers 2019:14, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2019_014
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    12. Issing, Otmar, 2012. "Lessons for Monetary Policy," MIT Press Book Chapters, in: Blanchard, Olivier J. & Romer, David & Spence, Michael & Stiglitz, Joseph E. (ed.), In the Wake of the Crisis: Leading Economists Reassess Economic Policy, edition 1, volume 1, chapter 3, pages 25-29, The MIT Press.
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    Cited by:

    1. Andersson, Fredrik N.G. & Jonung, Lars, 2020. "Lessons from the Swedish Experience with Negative Central Bank Rates," Working Papers 2020:15, Lund University, Department of Economics.

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    More about this item

    Keywords

    forward guidance; central bank communication; interest rate forecasting; inflation targeting; the Riksbank; monetary policy; Sweden;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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