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Inflation Forecast Targeting: The Swedish Experience

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  • Berg, Claes

    ()
    (Monetary Policy Department, Central Bank of Sweden)

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    Abstract

    In this paper key points in the development of the present Swedish inflation-targeting strategy are analysed. Since the implementation of the inflation target strategy began in 1993, three different phases are distinguished: the establishment of the inflation target, the communication of explicit inflation forecasts, and, finally, the introduction of distribution forecast targeting. In practice, distribution forecast targeting involves presenting a main scenario for future inflation, and assessments of both the degree of uncertainty in the forecast and the magnitude of the upside and downside risks in the main scenario in quarterly inflation reports. While inflation targeting in Sweden has been succesful in reducing both inflation and private sector inflation expectations, aggregate demand as well as supply shocks and temporary factors have also exerted a downward influence on inflation in the 1990s. It is therefore premature to distinguish any improvements in the inflation-output trade-off. It is likely, however, that the increased credibility of the inflation target has resulted in both a lower average inflation level and lower inflation variability.

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    Bibliographic Info

    Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 100.

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    Length: 35 pages
    Date of creation: 01 Feb 2000
    Date of revision:
    Handle: RePEc:hhs:rbnkwp:0100

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    Related research

    Keywords: Inflation targeting; Distribution forecast targeting;

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    References

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    1. Svensson, Lars E O, 1999. "Monetary Policy Issues for the Eurosystem," CEPR Discussion Papers 2197, C.E.P.R. Discussion Papers.
    2. Svensson, Lars E.O., 1997. "Inflation Targeting: Some Extensions," Seminar Papers 625, Stockholm University, Institute for International Economic Studies.
    3. Svensson, Lars E O, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," CEPR Discussion Papers 1511, C.E.P.R. Discussion Papers.
    4. Gerlach, Stefan & Smets, Frank, 1995. "The Monetary Transmission Mechanism: Evidence from the G-7 Countries," CEPR Discussion Papers 1219, C.E.P.R. Discussion Papers.
    5. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
    6. Coenen, Günter & Orphanides, Athanasios & Wieland, Volker, 2003. "Price stability and monetary policy effectiveness when nominal interest rates are bounded at zero," Working Paper Series 0231, European Central Bank.
    7. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    8. Lars E.O. Svensson, 1995. "The Swedish Experience of an Inflation Target," NBER Working Papers 4985, National Bureau of Economic Research, Inc.
    9. Bernanke, Ben S & Woodford, Michael, 1997. "Inflation Forecasts and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 653-84, November.
    10. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
    11. Ben S. Bernanke & Ilian Mihov, 1996. "What Does the Bundesbank Target?," NBER Working Papers 5764, National Bureau of Economic Research, Inc.
    12. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
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    Cited by:
    1. Eichengreen, Barry, 2001. "The EMS Crisis in Retrospect," CEPR Discussion Papers 2704, C.E.P.R. Discussion Papers.

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