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

No 169, Working Paper Series from Sveriges Riksbank (Central Bank of 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 (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2004-08-01
New Economics Papers: this item is included in nep-cba and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.riksbank.com/upload/WorkingPapers/WP_169.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0169

Access Statistics for this paper

More papers in Working Paper Series from Sveriges Riksbank (Central Bank of Sweden) Sveriges Riksbank, SE-103 37 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Lena Löfgren ().