Monetary Policy Frameworks – Norges Bank in the Light of the Literature and International Practice

Abstract

The past 20 years have brought major changes in monetary policy, in Norway and abroad. Most central banks now have instrument independence, and price stability is the common objective of monetary policy. The organisation of the monetary policy decision within central banks has also changed. This decision is now typically taken by a committee. There have also been major changes in terms of transparency and communication. These developments are the product of both economic theory and historical developments. Despite similar developments across countries, there are still differences, particularly in the composition, size and working methods of monetary policy committees, but also in how central banks communicate. Differences across countries are probably a reflection of different economies and different traditions. Theoretical and empirical research provide guidance as to the optimal framework, but do not give a clear answer.