Foreword

Inflation targeting as a framework for monetary policy was introduced for the first time by New Zealand in 1990 and has since been adopted by more than 30 countries. In Norway, an inflation target was defined as the operational target of monetary policy and laid down in the form of a mandate in 2001.

Experience with inflation targeting, in Norway and internationally, has been predominantly positive The framework has provided a credible nominal anchor, while allowing monetary policy sufficient flexibility to respond appropriately to different shocks to the economy. Inflation targeting usually refers in practice to flexible inflation targeting. Both in Norway and internationally, central banks have moved towards a greater degree of flexibility than when inflation targeting was introduced. Flexibility in practice has been essential to achieving a balanced tradeoff in response to economic shocks.

Even though inflation targeting has worked well, it is important to keep abreast of international developments in this field and conduct research into the appropriate monetary policy framework for a small, commodity-based economy such as Norway. Against this background, Norges Bank launched a research project in 2013 entitled ReFIT – Review of Flexible Inflation Targeting. This report contains a description of the research conducted and a discussion of the literature on the topics that have been the focus of the ReFIT project.

Even though the ReFIT project has now formally been concluded, Norges Bank will continue its research into a number of the issues discussed in this report. When circumstances change, we must be capable of adapting and revising our thinking. It is therefore important that in our conduct of monetary policy we learn from the past, keep up to date with international experience and take on board new insight provided by research.

Øystein Olsen