Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 169: How Useful are Simple Rules for Monetary Policy? The Swedish Experience
Claes Berg (), Per Jansson () and Anders Vredin ()
Additional contact information
Claes Berg: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Per Jansson: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Anders Vredin: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: Monetary policy is often analysed in terms of simple rules. Such rules may be useful for many purposes, even when they do not describe the actual monetary policy strategy exactly. This paper compares monetary policy in Sweden during the inflation-targeting regime 19932002 with the policies implied by certain simple instrument rules. Calibrated rules that are commonly used in theoretical analyses do not provide good approximations of Sveriges Riksbank’s (the central bank of Sweden) policy, whereas rules with reaction coefficients that have been estimated using the bank’s own (realtime forecasts do capture policy behaviour quite well. There are different forecastbased rules including different arguments and forecast horizons that describe monetary policy about equally well. A close reading of various policy documents, e.g., Inflation Reports, minutes from the bank’s Executive Board meetings, and speeches, shows that large deviations from the simple rules are associated with factors that are usually neglected in theoretical models of monetary policy. Examples of such factors are concerns for credibility and uncertainties about various economic relationships.
Keywords: monetary policy; inflation target; Taylor rule; forecast-based policy rules; transparency
44 pages, August 1, 2004
Full text files
WP_169.pdf
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