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

  • Jansson, Per

    (Monetary Policy Department, Central Bank of Sweden)

  • Vredin, Anders

    ()

    (Research Department, Central Bank of Sweden)

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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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
Web page: http://www.riksbank.com/
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  1. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
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  3. Glenn D. Rudebusch, 1996. "Do measures of monetary policy in a VAR make sense?," Working Papers in Applied Economic Theory 96-05, Federal Reserve Bank of San Francisco.
  4. Glenn Rudebusch & Lars E.O. Svensson, 1999. "Policy Rules for Inflation Targeting," NBER Chapters, in: Monetary Policy Rules, pages 203-262 National Bureau of Economic Research, Inc.
  5. Svensson, L.E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Papers 646, Stockholm - International Economic Studies.
  6. Romer, Christina D. & Romer, David H., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Department of Economics, Working Paper Series qt5h07k8vf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  7. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series 93, Sveriges Riksbank (Central Bank of Sweden).
  8. Thomas Laubach & Jeffery D. Amato, 2000. "Forecast-based monetary policy," BIS Working Papers 89, Bank for International Settlements.
  9. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
  10. Eric M. Leeper & Tao Zha, 2002. "Modest policy interventions," FRB Atlanta Working Paper 2002-19, Federal Reserve Bank of Atlanta.
  11. 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 WP-97-18, Federal Reserve Bank of Chicago.
  12. Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
  13. Villani, Mattias, 1999. "Bayesian Prediction with a Cointegrated Vector Autoregression," Working Paper Series 97, Sveriges Riksbank (Central Bank of Sweden).
  14. Leitemo, Kai, 2003. " Targeting Inflation by Constant-Interest-Rate Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 609-26, August.
  15. Williams, John C. & Levin, Andrew T. & Wieland, Volker, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Working Paper Series 0068, European Central Bank.
  16. Bennett T. McCallum, 2000. "Alternative monetary policy rules : a comparison with historical settings for the United States, the United Kingdom, and Japan," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 49-79.
  17. John C. Robertson & Ellis W. Tallman, 1999. "Vector autoregressions: forecasting and reality," Economic Review, Federal Reserve Bank of Atlanta, issue Q1, pages 4-18.
  18. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," NBER Working Papers 5893, National Bureau of Economic Research, Inc.
  19. Ellingsen, Tore & Söderström, Ulf, 1998. "Monetary Policy and Market Interest Rates," SSE/EFI Working Paper Series in Economics and Finance 242, Stockholm School of Economics, revised 08 Mar 1999.
  20. Batini, Nicoletta & Nelson, Edward, 2000. "Optimal Horizons for Inflation Targeting," Working Paper Series 103, Sveriges Riksbank (Central Bank of Sweden).
  21. Charles Goodhart, 2000. "Monetary Transmission Lags and the Formulation of the Policy Decision on Interest Rates," FMG Special Papers sp124, Financial Markets Group.
  22. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  23. Leeper, Eric M., 1997. "Narrative and VAR approaches to monetary policy: Common identification problems," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 641-657, December.
  24. Apel, Mikael & Jansson, Per, 1999. "A Parametric Approach for Estimating Core Inflation and Interpreting the Inflation Process," Working Paper Series 80, Sveriges Riksbank (Central Bank of Sweden).
  25. 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., vol. 16(4), pages 487-520.
  26. Romer, Christina D. & Romer, David H., 1997. "Identification and the narrative approach: A reply to Leeper," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 659-665, December.
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