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Inflation Forecast Targeting: The Swedish Experience

  • Berg, Claes

    ()

    (Monetary Policy Department, Central Bank of Sweden)

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    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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    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
    Contact details of provider: Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
    Phone: 08 - 787 00 00
    Fax: 08-21 05 31
    Web page: http://www.riksbank.com/
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    1. Lars E.O. Svensson, 1995. "The Swedish Experience of an Inflation Target," NBER Working Papers 4985, National Bureau of Economic Research, Inc.
    2. Svensson, Lars E.O., 1997. "Inflation Targeting: Some Extensions," Seminar Papers 625, Stockholm University, Institute for International Economic Studies.
    3. Ben S. Bernanke & Michael Woodford, 1997. "Inflation Forecasts and Monetary Policy," NBER Working Papers 6157, National Bureau of Economic Research, Inc.
    4. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    5. Athanasios Orphanides & Volker Wieland, 1998. "Price stability and monetary policy effectiveness when nominal interest rates are bounded at zero," Finance and Economics Discussion Series 1998-35, Board of Governors of the Federal Reserve System (U.S.).
    6. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
    7. Svensson, Lars E O, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," CEPR Discussion Papers 1511, C.E.P.R. Discussion Papers.
    8. 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.
    9. Ben S. Bernanke & Ilian Mihov, 1996. "What Does the Bundesbank Target?," NBER Working Papers 5764, National Bureau of Economic Research, Inc.
    10. Lars E.O. Svensson, 1999. "Monetary policy issues for the Eurosystem," Proceedings, Federal Reserve Bank of San Francisco.
    11. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
    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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