The central bank’s instruments
Governor Svein Gjedrem
Centre for Monetary Economics (CME)
6 September 2010
Sovereign debt to GDP in the G7
Per cent
0 20 40 60 80 100 120 140
0 20 40 60 80 100 120 140
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
2 Source: IMF Global Financial Stability Report
The loss function
L
t= (π
t– π
*)
2+ λ(y
t– y
t*)
2+ δ(i
t– i
t-1)
2+ κ(i
t– i
tenkel)
2Key policy rate
Per cent. 2008 Q1 –2016 Q4
4
0 1 2 3 4 5 6 7 8 9
0 1 2 3 4 5 6 7 8 9
2008 2010 2012 2014 2016
Criterion 1 Criteria 1&2 Criteria 1&2&3 Baseline scenario
Source: Norges Bank
Change in interest rate forecast over time
Norges Bank
Per cent. November 2005 – December 2013
Reserve Bank of New Zealand
Sources: Norges Bank and Archer (2005)
0 1 2 3 4 5 6 7 8 9
0 1 2 3 4 5 6 7 8 9
2004 2006 2008 2010 2012
Key policy rate MPR 3/05 - 1/10 MPR 2/10
Publication of interest rate forecasts – how does the market react?
Basis points. Absolute difference between forecast and market two years ahead. From MPR 3/05 to 2/10.
0 10 20 30 40 50 60 70 80
0 10 20 30 40 50 60 70 80
Average
Source: Norges Bank
6
How does the market react to the publication of the interest rate forecast?
Basis points. Absolute average difference in relation to the new forecast. Number of quarters ahead. From MPR 3/05 to 2/10
Source: Norges Bank
0 5 10 15 20 25 30 35 40 45
0 5 10 15 20 25 30 35 40 45
1 2 3 4 5 6 7 8 9 10 11 12
Before After
Central bank balance sheet - stylised
Assets Liabilities
Foreign exchange reserves
Notes and coins Lending to banks Treasury deposits
Deposits from
banks(=central bank liquidity)
8
Liquidity in the banking system
In billions of NOK. Daily figures. 1 January 2000 – 2 September 2010
0 20 40 60 80 100 120 140
0 20 40 60 80 100 120 140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Norges Bank
