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Inflation Forecast Targeting: The Swedish Experience

Listed author(s):
  • Berg, Claes

    ()

    (Monetary Policy Department, Central Bank of Sweden)

Registered author(s):

    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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    File URL: http://www.riksbank.com/upload/3802/WP_100.pdf
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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
    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. Svensson, L.E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Papers 646, Stockholm - International Economic Studies.
    2. 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.
    3. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
    4. Bernanke, Ben S & Woodford, Michael, 1997. "Inflation Forecasts and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 653-684, November.
    5. Svensson, L-E-O, 1997. "Inflation Targeting : Some Extensions," Papers 625, Stockholm - International Economic Studies.
    6. Stefan Gerlach & Frank Smets, 1995. "The monetary transmission mechanism: Evidence from the G-7 countries," BIS Working Papers 26, Bank for International Settlements.
    7. Athanasios Orphanides & Volker W. 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.).
    8. Lars E. O. Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," NBER Working Papers 5797, National Bureau of Economic Research, Inc.
    9. Lars E. O. Svensson, 1996. "Price Level Targeting vs. Inflation Targeting: A Free Lunch?," NBER Working Papers 5719, National Bureau of Economic Research, Inc.
    10. 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.
    11. Bernanke, Ben S. & Mihov, Ilian, 1997. "What does the Bundesbank target?," European Economic Review, Elsevier, vol. 41(6), pages 1025-1053, June.
    12. Svensson, Lars E O, 1995. "The Swedish Experience of an Inflation Target," CEPR Discussion Papers 1103, C.E.P.R. Discussion Papers.
    13. Svensson, Lars E. O., 1999. "Monetary policy issues for the Eurosystem," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 79-136, December.
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