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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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File URL: http://www.riksbank.se/upload/Dokument_riksbank/Kat_foa/wp_120.pdf
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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. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  2. Nicoletta Batini & Andrew G Haldane, 1999. "Forward-looking rules for monetary policy," Bank of England working papers 91, Bank of England.
  3. Svensson, Lars E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Seminar Papers 646, Stockholm University, Institute for International Economic Studies.
  4. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
  5. Christina D. Romer & David H. Romer, 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 121-184 National Bureau of Economic Research, Inc.
  6. Svensson, Lars E.O. & Rudebusch , Glenn, 1998. "Policy Rules for Inflation Targeting," Seminar Papers 637, Stockholm University, Institute for International Economic Studies.
  7. Eric M. Leeper & Tao Zha, 1999. "Modest policy interventions," Working Paper 99-22, Federal Reserve Bank of Atlanta.
  8. Rudebusch, G.D., 1996. "Do Measures of Monetary Policy in a VAR Make Sense?," Papers 269, Banca Italia - Servizio di Studi.
  9. 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.
  10. 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).
  11. Batini, Nicoletta & Nelson, Edward, 2001. "Optimal horizons for inflation targeting," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 891-910, June.
  12. 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.
  13. Andrew Levin & Volker Wieland & John C. Williams, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Finance and Economics Discussion Series 2001-39, Board of Governors of the Federal Reserve System (U.S.).
  14. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  15. 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.
  16. Villani, Mattias, 1999. "Bayesian Prediction with a Cointegrated Vector Autoregression," Working Paper Series 97, Sveriges Riksbank (Central Bank of Sweden).
  17. 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.
  18. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," Working Papers 97-32, C.V. Starr Center for Applied Economics, New York University.
  19. Thomas Laubach & Jeffery D. Amato, 2000. "Forecast-based monetary policy," BIS Working Papers 89, Bank for International Settlements.
  20. John C. Robertson & Ellis W. Tallman, 1999. "Vector autoregressions: forecasting and reality," Economic Review, Federal Reserve Bank of Atlanta, issue Q1, pages 4-18.
  21. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April.
  22. 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.
  23. 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.
  24. Charles Goodhart, 2000. "Monetary Transmission Lags and the Formulation of the Policy Decision on Interest Rates," FMG Special Papers sp124, Financial Markets Group.
  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. 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.
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