Abstract

This paper documents GEORG, "Ganske Enkel Optimal ReGel", a policy rule  designed to replicate the loss function based policy rate path in Norges Bank’s main macro model, NEMO. The rule is forward looking and uses a selection of macroeconomic indicators of inflation and output developments. Coefficients are estimated by impulse response matching (IRF matching), ie the parameters are set so that the model dynamics of using GEORG in NEMO closely match those of the standard loss function based optimal policy. We outline how the rule can be used to compute a model based policy rate path and how to decompose model based path changes into intuitive forecast revisions.