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The Tyranny of the Tenths. The Rise and Gradual Fall of Forward Guidance in Sweden 2007-2018

Andersson, Fredrik N G LU and Jonung, Lars LU (2019) In Working Papers
Abstract
This paper examines the Swedish experience of forward guidance 2007-2018. We focus on three interrelated issues: first, the effects of forward guidance on the discussion within the Board of Directors of the Riksbank, second, on the communication between the Riksbank and the public, and third, on the interest rate expectations held by various groups in Swedish society. We conclude that forward guidance has had negative effects on the dialogue within the Board as well on the communication between the Riksbank and the public. In addition, forward guidance has failed to affect expectations about interest rates in a systematic and significant way. We trace the roots of these consequences to the inability of the Riksbank to forecast its future... (More)
This paper examines the Swedish experience of forward guidance 2007-2018. We focus on three interrelated issues: first, the effects of forward guidance on the discussion within the Board of Directors of the Riksbank, second, on the communication between the Riksbank and the public, and third, on the interest rate expectations held by various groups in Swedish society. We conclude that forward guidance has had negative effects on the dialogue within the Board as well on the communication between the Riksbank and the public. In addition, forward guidance has failed to affect expectations about interest rates in a systematic and significant way. We trace the roots of these consequences to the inability of the Riksbank to forecast its future policy rate three years ahead with any reasonable accuracy. The Riksbank has learned from this dismal performance and partially abandoned forward guidance, returning to a focus on the rate of inflation – as it did prior to the introduction of forward guidance. (Less)
Please use this url to cite or link to this publication:
author
and
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
forward guidance, central bank communication, interest rate forecasting, inflation targeting, the Riksbank, monetary policy, Sweden, E40, E43, E47, E50, E52, E65
in
Working Papers
issue
2019:14
pages
29 pages
language
English
LU publication?
yes
id
e90eb2d2-ccb8-4fe1-8f44-8981e6b4fd32
alternative location
https://swopec.hhs.se/lunewp/abs/lunewp2019_014.htm
date added to LUP
2019-11-05 14:53:48
date last changed
2019-11-06 16:31:51
@misc{e90eb2d2-ccb8-4fe1-8f44-8981e6b4fd32,
  abstract     = {{This paper examines the Swedish experience of forward guidance 2007-2018. We focus on three interrelated issues: first, the effects of forward guidance on the discussion within the Board of Directors of the Riksbank, second, on the communication between the Riksbank and the public, and third, on the interest rate expectations held by various groups in Swedish society. We conclude that forward guidance has had negative effects on the dialogue within the Board as well on the communication between the Riksbank and the public. In addition, forward guidance has failed to affect expectations about interest rates in a systematic and significant way. We trace the roots of these consequences to the inability of the Riksbank to forecast its future policy rate three years ahead with any reasonable accuracy. The Riksbank has learned from this dismal performance and partially abandoned forward guidance, returning to a focus on the rate of inflation – as it did prior to the introduction of forward guidance.}},
  author       = {{Andersson, Fredrik N G and Jonung, Lars}},
  keywords     = {{forward guidance; central bank communication; interest rate forecasting; inflation targeting; the Riksbank; monetary policy; Sweden; E40; E43; E47; E50; E52; E65}},
  language     = {{eng}},
  month        = {{11}},
  note         = {{Working Paper}},
  number       = {{2019:14}},
  series       = {{Working Papers}},
  title        = {{The Tyranny of the Tenths. The Rise and Gradual Fall of Forward Guidance in Sweden 2007-2018}},
  url          = {{https://swopec.hhs.se/lunewp/abs/lunewp2019_014.htm}},
  year         = {{2019}},
}