Evaluating Monetary Policy

Lars E.O. Svensson

NBER Working Paper No. 15385
Issued in September 2009
NBER Program(s):   EFG   ME

Evaluating inflation-targeting monetary policy is more complicated than checking whether inflation has been on target, because inflation control is imperfect and flexible inflation targeting means that deviations from target may be deliberate in order to stabilize the real economy. A modified Taylor curve, the forecast Taylor curve, showing the tradeoff between the variability of the inflation-gap and output-gap forecasts can be used to evaluate policy ex ante, that is, taking into account the information available at the time of the policy decisions, and even evaluate policy in real time. In particular, by plotting mean squared gaps of inflation and output-gap forecasts for alternative policy-rate paths, it may be examined whether policy has achieved an efficient stabilization of both inflation and the real economy and what relative weight on the stability of inflation and the real economy has effectively been applied. Ex ante evaluation may be more relevant than evaluation ex post, after the fact. Publication of the interest-rate path also allows the evaluation of its credibility and the effectiveness of the implementation of monetary policy.

download in pdf format
   (229 K)

email paper

This paper is available as PDF (229 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15385

Published: “Evaluating Monetary Policy,” in Koenig, Evan F., Robert Leeson, and George A. Kahn, eds., The Taylor Rule and the Transformation of Monetary Policy, Hoover Institution Press, 2012, p. 245-274 (revision and update of speech on March 13, 2009).

Users who downloaded this paper also downloaded these:
Uhlig w14996 Monetary policy in Europe vs the US: what explains the difference?
Gali and Gertler w13542 Macroeconomic Modeling for Monetary Policy Evaluation
Mishkin w14678 Is Monetary Policy Effective During Financial Crises?
Svensson w16654 Inflation Targeting
Mishkin w16755 Monetary Policy Strategy: Lessons from the Crisis
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us