Evaluation of Norges Bank’s Projections for 1999

Abstract

In order to provide the central bank with an optimal basis for the conduct of monetary policy, the central bank must evaluate its projections for economic developments. Norges Bank has previously published analyses of its projections for 1996, 1997 and 1998. This article evaluates the Bank’s projections for 1999. The article starts with an analysis of the projections in the December 1997 Inflation Report. The baseline scenario in the report implied a cyclical turnaround in 2000, but the turnaround occurred as early as mid-1998 and was followed by slow growth in 1999. The analysis of main developments was broadly in line with actual developments, but events in 1998 led to an earlier-than-projected turnaround. The projections for 1999 were therefore not particularly accurate. However, the report also included alternative projections where important assumptions were changed, for example a substantial depreciation of the krone and a rise in interest rates. Developments in the latter half of 1998 and into 1999 were closely in line with this alternative. The projections for 1999 published in the December 1998 Inflation Report were closer to the mark. Norges Bank’s projections are compared with those of Statistics Norway and the Ministry of Finance. Norges Bank’s forecast for wage growth can be said to be at least as good as that of the two other institutions. There are no systematic differences with regard to the accuracy of price inflation projections.