The main change being that we now base our forecasts on our own view of the future repo rate path and we give this forecast relatively large significance when communicating our monetary policy. We have also worked extensively on bringing in new, larger models, such as general equilibrium models, into the forecasting work. The forecasts are the result of an interplay between models and assessments Our toolbox for making forecasts consists of assessments, theories, empirical studies and models. These tools complement one another and have different roles in the work. They are all important and necessary to make as good forecasts as possible. As the economy is so extremely complex, we use various macroeconomic models to help us piece together a coherent picture of the economy. These models are based on modern economic theory, empirical studies and practical experience of different correlations in the economy. This makes it easier for us to make a consistent assessment of how the different parts of the economy will develop. If one merely studies individual correlations one misses the interdependence existing between the different parts and sectors of the economy. There is a considerable risk that the different parts of the analysis will not hold together. 3  Pollard (2004) shows that 79 out of 88 central banks have committees which make interest rate decisions. 4  See Blinder and Wyplosz (2004). FOMC stands for Federal Open Market Committee. 2  BIS Review 77/2008  But models are merely simplifications of the reality.
For a small, open economy like Sweden the natural starting-point for the forecasting work is how economic activity and inflation develop in the world around us. The forecasting work therefore begins with an international outlook meeting, which has the purpose of reaching a preliminary forecast for international events. Soon after this a financial market meeting is held. At this meeting there is a discussion of market participants’ expectations of the repo rate and how these have changed since the previous monetary policy meeting. These are then compared with the model forecasts for the repo rate and how these have changed. In addition, there are analyses and discussions of what has happened in the financial markets since the previous assessment. House prices, credits, stock market rates, exchange rates, money supply, international rates and so on are also discussed at this meeting. After this a current status meeting is held, where the focus is on the current situation in the Swedish economy. One particularly important aspect is to assess how much of the Swedish economy’s total resources in the form of labour and machinery are currently being used to a normal extent. Apart from new information on the current economic situation, there are also discussions of other new information that may be important for the forecasts in the slightly longer term. The first monetary policy group meeting with the Executive Board summarises new information After this it is time for the first large monetary policy group meeting.