The Inflation Targeting Framework in Norway (EPub)
Norway adopted an inflation targeting framework in early 2001, thus concluding its gradual but consistent move toward greater exchange rate flexibility. This paper assesses the institutional and technical design of the framework, as well as its potential implications for the practical implementation of monetary policy against the experience from selected industrial countries that had adopted inflation targeting frameworks prior to Norway. Norway's role as a commodity exporter exposed to large terms of trade shocks, and the possible consequences of newly introduced fiscal guidelines are also discussed.
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2½ percent achieving the target aggregate demand asset prices bank’s inflation forecast bank’s objective function bringing inflation back central bank legislation central bank’s objective conduct monetary policy conduct of monetary constant interest rate consumer price index consumer price inflation CPIATE credibility deviations domestic euro area exchange rate movements exchange rate stability Executive Board forecast errors goal government’s headline inflation hits the economy implementation of monetary indirect taxes inflation and output inflation expectations inflation outlook inflation rate Inflation Report inflation targeting framework interest rate path krone exchange rate longer target horizon low and stable monetary policy meetings monetary transmission money market rates Moreover nominal exchange rate Norges Bank Norges Bank’s inflation Norway’s Norwegian Krone output gap percentage point point target potential price stability provides real appreciation real exchange rate real taxes risk RRMSE shock hits short-term small open economies stable inflation Statistics Norway supply shocks target bands transmission mechanism transparency