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Forecast-based Monetary Policy in Sweden 1992-1998: A View from Within

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Author Info

  • Jansson, Per

    (Monetary Policy Department, Central Bank of Sweden)

  • Vredin, Anders

    ()
    (Research Department, Central Bank of Sweden)

Abstract

The use of explicit inflation targets has meant that monetary policy has become more transparent and also easier to evaluate. The analysis in this paper is based on forecasts by Sveriges Riksbank (the central bank of Sweden) on real output and inflation. Our purpose is to separate the effects on the interest-rate instrument from (i) discretionary changes in the rule for monetary policy, and (ii) judgements in forecasting. We first feed the Riksbank´s forecasts into two different simple rules for interest-rate policy. The differences between the interest rates implied by these benchmark rules and the actual policy rate are interpreted as measures of "policy shocks". Second, we compare the Riksbank´s forecasts with alternative forecasts. Using a benchmark rule for the setting of the policy rate, we can use the differences between the forecasts to define measures of the effects of the Riksbank´s "judgements" on its interest-rate policy.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 120.

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Length: 37 pages
Date of creation: 01 Feb 2001
Date of revision:
Handle: RePEc:hhs:rbnkwp:0120

Contact details of provider:
Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
Email:
Web page: http://www.riksbank.com/
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Related research

Keywords: Central bank forecasts; Inflation targeting; Judgmental forecasts; Monetary policy; Policy rules;

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References

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  1. Batini, Nicoletta & Nelson, Edward, 2001. "Optimal horizons for inflation targeting," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(6-7), pages 891-910, June.
  2. Eric M. Leeper & Tao Zha, 1999. "Modest policy interventions," Working Paper, Federal Reserve Bank of Atlanta 99-22, Federal Reserve Bank of Atlanta.
  3. Christina D. Romer and David H. Romer., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Economics Working Papers, University of California at Berkeley 89-107, University of California at Berkeley.
  4. Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 98-03, Federal Reserve Bank of San Francisco.
  5. Ellingsen, Tore & Söderström, Ulf, 1998. "Monetary Policy and Market Interest Rates," Working Paper Series in Economics and Finance, Stockholm School of Economics 242, Stockholm School of Economics, revised 08 Mar 1999.
  6. Svensson, Lars E. O., 1998. "Inflation targeting as a monetary policy rule," CFS Working Paper Series, Center for Financial Studies (CFS) 1998/16, Center for Financial Studies (CFS).
  7. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  8. Thomas Laubach & Jeffery D. Amato, 2000. "Forecast-based monetary policy," BIS Working Papers 89, Bank for International Settlements.
  9. Andrew Levin & John C. Williams, 2000. "The Performance of Forecast-Based Monetary Policy Rules under Model Uncertainty," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1781, Econometric Society.
  10. Bennett T. McCallum, 2000. "Alternative Monetary Policy Rules: A Comparison with Historical Settings for the United States, the United Kingdom, and Japan," NBER Working Papers 7725, National Bureau of Economic Research, Inc.
  11. Apel, Mikael & Jansson, Per, 1999. "A Parametric Approach for Estimating Core Inflation and Interpreting the Inflation Process," Working Paper Series, Sveriges Riksbank (Central Bank of Sweden) 80, Sveriges Riksbank (Central Bank of Sweden).
  12. Leitemo, Kai, 2003. " Targeting Inflation by Constant-Interest-Rate Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(4), pages 609-26, August.
  13. Orphanides, Athanasios, 2000. "The quest for prosperity without inflation," Working Paper Series, European Central Bank 0015, European Central Bank.
  14. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers, Stockholm - International Economic Studies 638, Stockholm - International Economic Studies.
  15. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2139, C.E.P.R. Discussion Papers.
  16. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago WP-97-18, Federal Reserve Bank of Chicago.
  17. Rudebusch, G.D., 1996. "Do Measures of Monetary Policy in a VAR Make Sense?," Papers, Banca Italia - Servizio di Studi 269, Banca Italia - Servizio di Studi.
  18. Romer, Christina D. & Romer, David H., 1997. "Identification and the narrative approach: A reply to Leeper," Journal of Monetary Economics, Elsevier, Elsevier, vol. 40(3), pages 659-665, December.
  19. John C. Robertson & Ellis W. Tallman, 1999. "Vector autoregressions: forecasting and reality," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q1, pages 4-18.
  20. Nicoletta Batini & Andrew Haldane, 1999. "Forward-Looking Rules for Monetary Policy," NBER Chapters, National Bureau of Economic Research, Inc, in: Monetary Policy Rules, pages 157-202 National Bureau of Economic Research, Inc.
  21. Tor Jacobson & Per Jansson & Anders Vredin & Anders Warne, 2001. "Monetary policy analysis and inflation targeting in a small open economy: a VAR approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(4), pages 487-520.
  22. Villani, Mattias, 1999. "Bayesian Prediction with a Cointegrated Vector Autoregression," Working Paper Series, Sveriges Riksbank (Central Bank of Sweden) 97, Sveriges Riksbank (Central Bank of Sweden).
  23. Charles Goodhart, 2000. "Monetary Transmission Lags and the Formulation of the Policy Decision on Interest Rates," FMG Special Papers, Financial Markets Group sp124, Financial Markets Group.
  24. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(2), pages 97-116, Spring.
  25. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
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Cited by:
  1. Andrew Levin & Volker Wieland & John Williams, 2000. "The Performance Of Forecast-Based Monetary Policy Rules Under Model Uncertainty," Computing in Economics and Finance 2000, Society for Computational Economics 203, Society for Computational Economics.
  2. Lars E.O. Svensson, 2002. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 118, Princeton University, Department of Economics, Center for Economic Policy Studies..
  3. Berlemann, Michael, 2001. "Forecasting inflation via electronic markets: Results from a prototype market," Dresden Discussion Paper Series in Economics, Dresden University of Technology, Faculty of Business and Economics, Department of Economics 06/01, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.

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