Does the Riksbank follow the Taylor rule? : An empirical analysis of the Riksbank’s monetary policy 1995-2023

Abstract: In this thesis I examine the Riksbank’s monetary policy for five periods from 1995-2023 to see if the Riksbank follows the Taylor rule. I do so by conducting a diagram of the actual policy rate and the suggested policy rate from the Taylor rule. I also conduct reaction functions using the inflation gap and the output gap and the dynamic Taylor rule’s reaction function. The results gives that the reaction function based on Taylors original rule gave positive and overall statistically significant outcomes for the first periods, while the last two periods had negative and statistically insignificant outcome. The dynamic Taylor rule gave no significant results and evidence for interest smoothing cannot really be concluded. The graphical interpretation shows a similar result as the reaction function. The conclusion is that the Riksbank can be said to have followed the Taylor rule for the first two periods (1995-2005 and 2005-2010), but not for the last three periods (2010-2015, 2015-2020 and 2020-2023).