Staff Memo

Simple cross-check models for the krone exchange rate

Author: Tom Bernhardsen
Series: Staff Memo
Number: 1/2008

Introduction
In this paper we discuss simple cross-check models for the krone exchange rate. Such models may give information as to whether the exchange rate is in line with basic macroeconomic fundamentals. Norges Bank publishes forecasts for several variables, e.g. the interest rate, inflation, the output gap and the exchange rate. General equilibrium models are important tools in the forecasting process. However, as stated by Deputy Governor Jarle Bergo, “…There is no mechanical relationship between the models the Bank uses and its forecasts…Central to this process is the use of judgement…” (Bergo, 2006). Cross-checks are useful tools in the forecasting process as they may provide additional information not necessarily captured by the bank’s macro models.

 

Published 13 March 2008 10:30

Downloads