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What Is The Central Bank Effectively Targeting In Practice? Svensson’S Concept Of Inflation Forecast Targeting And Measures Of Inflation Projections-The Experiences Of Selected European Countries

Author

Listed:
  • Karolina Tura-Gawron

    (Gdansk University of Technology, Gdansk, Poland)

Abstract

This article presents a comparative study of central paths’ projections of Consumer Price Index (CPI index), core inflation and monetary policy-relevant inflation measure (MPRI) in the central banks of Sweden, Norway and Czech Republic. The analysis refers to the possibility of using core and MPRI inflation projections as a tool (intermediate goal) for the implementation of Svensson’s concept of optimal inflation forecast targeting strategy (IFT) and determines what the chosen central banks are effectively targeting in practice. The study includes a reference of the central paths of the CPI, core inflation and MPRI inflation projections, based on the endogenous rate, to the inflation target. The analysis has allowed us to determine that the central paths of core inflation projections have converged with the inflation target as the time horizon became longer, but still remained medium-term. Such a result is not given for all of the CPI projections. The implications for the implementation of the Svensson’s concept of optimal IFT strategy are that a projection of core inflation may be a typical, operational tool which anchors inflation expectations; as such (as CPI projection), it should be published, treated and used as an intermediate goal of monetary policy.

Suggested Citation

  • Karolina Tura-Gawron, 2016. "What Is The Central Bank Effectively Targeting In Practice? Svensson’S Concept Of Inflation Forecast Targeting And Measures Of Inflation Projections-The Experiences Of Selected European Countries," GUT FME Working Paper Series A 38, Faculty of Management and Economics, Gdansk University of Technology, revised Jul 2016.
    • Handle: RePEc:gdk:wpaper:38
    as

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    References listed on IDEAS

    as
    1. Lars E.O. Svensson & Robert J. Tetlow, 2005. "Optimal Policy Projections," International Journal of Central Banking, International Journal of Central Banking, vol. 1(3), December.
    2. Lars E. O. Svensson & Michael Woodford, 2004. "Implementing Optimal Policy through Inflation-Forecast Targeting," NBER Chapters, in: The Inflation-Targeting Debate, National Bureau of Economic Research, Inc.
    3. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
    4. Svensson, Lars E.O., 2009. "Transparency under Flexible Inflation Targeting: Experiences and Challenges," CEPR Discussion Papers 7213, C.E.P.R. Discussion Papers.
    5. Cobham,David & Eitrheim,Øyvind & Gerlach,Stefan & Qvigstad,Jan F. (ed.), 2010. "Twenty Years of Inflation Targeting," Cambridge Books, Cambridge University Press, number 9780521768184, January.
    6. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2008. "Evaluating an estimated new Keynesian small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2690-2721, August.
    7. Kevin Dowd, 2004. "The Swedish Inflation Fan Charts: An Evaluation of the Riksbank?s Inflation Density Forecasts," Occasional Papers 10, Industrial Economics Division, revised 11 Jan 2004.
    8. Magdalena Szyszko & Karolina Tura, 2015. "Can Inflation Forecast And Monetary Policy Path Be Really Useful? The Case Of The Czech Republic," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 10(3), pages 9-26, September.
    9. Frederic S. Mishkin, 2009. "Monetary Policy Strategy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262513374, December.
    10. Lars E.O. Svensson, 2006. "The Instrument-Rate Projection under Inflation Targeting: The Norwegian Example," Working Papers 75, Princeton University, Department of Economics, Center for Economic Policy Studies..
    11. Skrove Falch, Nina & Nymoen, Ragnar, 2011. "The accuracy of a forecast targeting central bank," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-36.
    12. Lars E.O. Svensson, 2006. "The Instrument-Rate Projection under Inflation Targeting: The Norwegian Example," Working Papers 75, Princeton University, Department of Economics, Center for Economic Policy Studies..
    13. repec:pri:cepsud:127svensson is not listed on IDEAS
    14. Karolina Tura-Gawron, 2016. "Credibility Of Central Banks Inflation Forecasts," GUT FME Working Paper Series A 37, Faculty of Management and Economics, Gdansk University of Technology.
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    More about this item

    Keywords

    core inflation; inflation projection; inflation targeting regime; inflation forecast;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other

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