Monetary Policy and Leading Indicators of Inflation in Sweden

IMF Working Papers, April 1, 1997

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Monetary Policy and Leading Indicators of Inflation in Sweden

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Bibliographic details

• Authors: Josef Baumgartner, Göran Zettergren, Ramana Ramaswamy
• Published: April 1, 1997
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451978926.001

Summary and main findings

• The paper derives a set of leading indicators of inflation for Sweden and discusses methodological and policy issues pertaining to the estimation of these indicators.
• Main findings:
  • (1) narrow money is the most powerful leading inflation indicator;
  • (2) broad money and inflation expectations have significant predictive information on inflation;
  • (3) the output gap, interest rates, and the credit aggregate have some predictive information on inflation, and this information is confined to a shorter time horizon than either the monetary aggregates or inflation expectations; and
  • (4) implied forward rates have only weak predictive information on inflation.

Methodological and policy issues discussed

• Estimation of leading indicators of inflation for Sweden.
• Comparison of predictive information content across different indicator types:
  • monetary aggregates (narrow money, broad money),
  • inflation expectations,
  • real economy measures (output gap),
  • financial variables (interest rates, credit aggregate, implied forward rates).
• Time-horizon differences in predictive power:
  • monetary aggregates and inflation expectations: predictive over longer horizons;
  • output gap, interest rates, credit aggregate: predictive over shorter horizons;
  • implied forward rates: weak predictive information.

Subject areas and keywords

• Subject: Cyclical indicators, Economic growth, Exchange rates, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Nominal effective exchange rate, Prices
• Keywords: Cyclical indicators, Exchange rates, GDP deflator, inflation, inflation expectation, inflation report, Inflation targeting, inflation well, leading indicators, Nominal effective exchange rate, real GDP, Sweden, time horizon, underlying inflation, WP, yield curve

Content in this bundle

• Monetary Policy and Leading Indicators of Inflation in Sweden - WP/97/34
  • Monetary Policy and Leading Indicators of Inflation in Sweden - WP/97/34 (Markdown version)
  • Monetary Policy and Leading Indicators of Inflation in Sweden - WP/97/34 (PDF)