A DECADE OF FORWARD GUIDANCE IN NORWAY
GOVERNOR ØYSTEIN OLSEN, APRIL 8 2014
The Norwegian economy
Percent
Sources: Statistics Norway and Norges Bank
-2 1 4 7
-2 1 4 7
1995 1999 2003 2007 2011
Mainland GDP Average
0 2 4 6 8
0 2 4 6 8
1995 1999 2003 2007 2011
Unemployment rate (ILO)
0 2 4 6 8
0 2 4 6 8
1995 1998 2001 2004 2007 2010 2013
Key policy rate
Introduction of inflation target
0 2 4
0 2 4
1995 1999 2003 2007 2011
CPI (core) Inflation target
2
Timeline: The first years of Norges Bank forward guidance
January 1999 March 2001 July 2004 March 2005 November 2005
Qualitative statements
Interest rate strategy for the next 4 months
Criteria for an appropriate interest
rate path
Forecast of interest rate path
3 Introduction of
inflation target
Our interest rate forecast is conditional
Projections from Monetary Policy Report 1/14. Percent
4 0
2 4 6
0 2 4 6
2008 2010 2012 2014 2016
Key policy rate
-4 -2 0 2 4
-4 -2 0 2 4
2008 2010 2012 2014 2016
Output gap
-1 1 3 5
-1 1 3 5
2008 2010 2012 2014 2016
CPI
-1 0 1 2 3 4 5
-1 1 3 5
2008 2010 2012 2014 2016
Core inflation 30%
50%
70%
90%
Sources: Statistics Norway and Norges Bank
The system for monetary policy analysis and forecasting
Regional network
«Now-casting»
(SAM)
Empirical and theoretical
models
Qualitative information and
reviews Policy model
(NEMO)
Monetary policy analysis
5
Criteria for an appropriate interest rate path
0 2 4 6
0 2 4 6
2008 2010 2012 2014
Key policy rate
Analysis from Monetary Policy Report 3/12. Percent
6
-2 0 2 4
-2 0 2 4
2008 2010 2012 2014
Output gap
0.0 2.5 5.0
0.0 2.5 5.0
2008 2010 2012 2014
Criterion 1 Criteria 1&2 Criteria 1,2&3 Core inflation
Sources: Statistics Norway and Norges Bank
Decomposition of change in the interest rate path
Factors behind change in path between MPR 3/12 and MPR 4/13. Percentage points
Source: Norges Bank
-3 -2 -1 0 1 2 3
-3 -2 -1 0 1 2 3
Q4 2013 Q2 2014 Q4 2014 Q2 2015 Q4 2015
Lending margins Exchange rate Interest rates abroad
Money market premiums Demand abroad Costs and prices
Capacity utilisation Change in the interest rate forecast
7
Decomposition of change in the interest rate path: Forecasts
Actual decomposition in MPR 3/11 and market analysts’ forecasts
8
-2 -1 0 1 2
2011 Q4 2012 Q2 2012 Q4 2013 Q2 2013 Q4 2014 Q2 2014 Q4 -2 -1 0 1
Interest rates abroad Money market premiums 2
Prices and costs Capacity utilisation
Growth abroad Additional assessment
Change in the interest rate forecast
DNB Nordea
Swedbank First Securities Norges Bank
Changes in money market rates after policy announcements
In absolute terms. Percentage points. 12-month market rates. March 2001–December 2013
0 0.1 0.2 0.3
0 0.1 0.2 0.3
2001 2003 2005 2007 2009 2011 2013
Exogenous interest rate assumption Norges Bank interest rate forecast
Sources: Thomson Reuters and Norges Bank 9
December 2013:
Small market reactions after policy announcement
Percent
0 1 2 3 4 5 6 7
0 1 2 3 4 5 6 7
2005 2007 2009 2011 2013 2015
Actual market rates
Norges Bank's previous market rate path Norges Bank's new market rate path Market rate path day before
Market rate path day after
1 1
Source: Norges Bank 10
1Norges Bank’s market rate path is calculated as Norges Bank’s forecast for the key policy rate plus an estimated 3- month interbank risk premium.
December 2008: Market rates shifted down markedly after policy announcement
Percent
0 1 2 3 4 5 6 7
0 1 2 3 4 5 6 7
2005 2006 2007 2008 2009 2010 2011
Actual market rate Norges Bank's new market rate path Market rate path day after Norges Bank's previous market rate path Market rate path day before
1
Source: Norges Bank 11
1 Norges Bank’s market rate path is calculated as Norges Bank’s forecast for the key policy rate plus an estimated 3- month interbank risk premium.
1
Interest rate expectations one year ahead
0 25 50 75 100
-4 -2 0 2 4
3/05 3/06 3/07 3/08 2/09 2/10 2/11 2/12 2/13 1/14
Norges Bank's forecast for change in key policy rate (percentage points, left-hand scale) Households' bank rate expectations (diffusion index, right-hand scale)
Sources: Opinion and Norges Bank 12
