When does an interest rate path “look good”? Criteria for an appropriate future interest rate path

Jan F. Qvigstad
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Jan F. Qvigstad: Norges Bank (Central Bank of Norway)

No 2006/05, Working Paper from Norges Bank

Abstract: Svensson (2004) suggested that a monetary policy committee of a central bank (MPC) should “find an instrument-rate path such that projections of inflation and output gap ‘look good’.” Academic literature on monetary policy gives guidance as to what the words “look good” means. However, there is a need for a translation of the theoretical framework into concrete criteria when an MPC shall evaluate interest rate paths in practice. Six criteria for an appropri-ate interest rate path are presented. In the November 2005 Inflation Report, Norges Bank presented for the first time an optimal interest rate path including a fan chart illustrating the uncertainty of the forecast using these criteria. Ex-amples used in explaining the criteria are drawn from Norwegian experiences.

Keywords: Forecasts; flexible inflation targeting; optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2006-05-09
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
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Citations: View citations in EconPapers (18)

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