|
Contents | Executive summary | How to obtain this publication | Additional info
The following OECD assessment and recommendations summarise chapter 2 of the Economic survey of Iceland published on 28 February 2008.
Contents
Once stability is achieved, adjustments to the inflation targeting framework could be considered
The inflation-targeting framework adopted by the Central Bank of Iceland and its communication policy reflect in many ways best practice in this area. There are nonetheless some features of the framework which could be refined over time to better take account of the inherent volatility of the Icelandic economy and to contribute to avoiding unnecessary employment and output fluctuations. To be sure, changing the rules of the game before inflation has been durably brought back to target would probably be counterproductive. However, once this has been achieved, modifications to the framework could be beneficial. In particular, greater emphasis on inflation expectations, which are key to influencing long term interest rates, is needed. The Central Bank policy statements should further emphasise the importance of inflation expectations, which should always remain firmly anchored even if actual inflation deviates from target. Another change that would be desirable is a revision of the methodology used to impute the service flow of owner-occupied housing entering into the target measure of inflation. The fact that the housing component of the targeted price index reflects mortgage rates has the unfortunate effect that monetary tightening tends to raise the target measure of inflation. Adopting a rental equivalence approach for owner-occupied housing is difficult because the rental market in Iceland is relatively small. Still, the issue needs to be addressed, perhaps in the context of related work at the European level. Changing the targeted index would obviously require a reconsideration of the targeted level of inflation.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Iceland 2008 is available from:
- SourceOECD for subscribing institutions and many libraries
-
-
OLISnet, under "Publication Locator", for government officials with accounts ( subscribe)
-
Additional information
For further information please contact the Iceland Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Hannes Suppanz and Andrea de Michelis under the supervision of Patrick Lenain. Research assistance was provided by Ane Kathrine Christensen.
|
