Review of macro modelling for policy purposes at Norges Bank

Abstract

The evaluation team was given a mandate to assess whether the current set of models employed for monetary policy analysis and forecasting purposes (i) constitute best practice in the policy arena and in relation to recent academic developments; (ii) are appropriate to answer relevant policy questions for an inflation-targeting central bank in a small open economy; (iii) and can be further developed in the years to come and in what way.

Our general conclusions are that i) Norges Bank is at the high end of the spectrum of best-practice central banks; ii) that the modelling strategy used to support the policy process is adequate and iii) that Norges Bank is conscious of recent developments at the frontier of macroeconomic modelling and is actively working in some of these areas. Nevertheless, we indicate a number of changes to the structure of the core model (NEMO) and, more generally, to the set of models used to support the policy decision process. We also present some strategic considerations on model developments for the years to come.