Evaluating Monetary Policy
AbstractEvaluating inflation-targeting monetary policy is more complicated than checking whether inflation has been on target, because inflation control is imperfect and flexible inflation targeting means that deviations from target may be deliberate in order to stabilize the real economy. A modified Taylor curve, the forecast Taylor curve, showing the tradeoff between the variability of the inflation-gap and output-gap forecasts can be used to evaluate policy ex ante, that is, taking into account the information available at the time of the policy decisions, and even evaluate policy in real time. In particular, by plotting mean squared gaps of inflation and output-gap forecasts for alternative policy-rate paths, it may be examined whether policy has achieved an efficient stabilization of both inflation and the real economy and what relative weight on the stability of inflation and the real economy has effectively been applied. Ex ante evaluation may be more relevant than evaluation ex post, after the fact. Publication of the interest-rate path also allows the evaluation of its credibility and the effectiveness of the implementation of monetary policy.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15385.
Date of creation: Sep 2009
Date of revision:
Publication status: published as “Evaluating Monetary Policy,” in Koenig, Evan F., Robert Leeson, and George A. Kahn, eds., The Taylor Rule and the Transformation of Monetary Policy, Hoover Institution Press, 2012, p. 245-274 (revision and update of speech on March 13, 2009).
Note: EFG ME
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Other versions of this item:
- Lars E. O. Svensson, 2012. "Evaluating Monetary Policy," Book Chapters, Hoover Institution, Stanford University, in: Evan F. Koenig & Robert Leeson & George A. Kahn (ed.), The Taylor Rule and the Transformation of Monetary Policy, chapter 11 Hoover Institution, Stanford University.
- Svensson, Lars E.O., 2009. "Evaluating Monetary Policy," Working Paper Series 235, Sveriges Riksbank (Central Bank of Sweden).
- Svensson, Lars E O, 2009. "Evaluating Monetary Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7481, C.E.P.R. Discussion Papers.
- 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-2009-09-26 (All new papers)
- NEP-CBA-2009-09-26 (Central Banking)
- NEP-MAC-2009-09-26 (Macroeconomics)
- NEP-MON-2009-09-26 (Monetary Economics)
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- Malin Adolfson & Stefan Laseen & Jesper LindÃ© & Mattias Villani, 2005. "An estimated New Keynesian small open economy model," Proceedings, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.).
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