Forecast‐Based Monetary Policy: The Case of Sweden

Abstract

AbstractCentral banks are dominant players in financial markets and economic policy. For both democratic and efficiency reasons, it is important that central banks' actions can be understood, predicted, and evaluated. Inflation‐targeting central banks that publish their forecasts provide unique opportunities for detailed studies of monetary policy based on real‐time data. This paper demonstrates how a central bank's forecasts can be used to identify two different forms of discretionary monetary policy: ‘policy shocks’ (deviations from systematic policy) and ‘judgements’ in forecasting.