Central Bank of Iceland economic forecasts
Forward-looking monetary policy is the foundation for the Bank’s achievement of its objective of price stability. In order for monetary policy to be forward-looking, the Bank must assess the short- and long-term economic outlook and the key uncertainties that could affect its forecasts. The Central Bank’s macroeconomic and inflation forecasts are prepared four times a year over a horizon of three years and are published in its Monetary Bulletin. The forecasts are based on an in-depth analysis of economic developments and prospects at the time they are prepared.
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Inflation forecast
The Central Bank’s macroeconomic and inflation forecasts perform an important function in monetary policy conduct. In assessing the inflation outlook, the Bank uses a number of tools, particularly to include its quarterly macroeconomic model (QMM). According to the model, the inflation outlook is determined by developments in imported inflation, unit labour costs, the output gap in the domestic economy, and expected future inflation. Bank staff also use simple time series models and expert assessments of the short-term inflation outlook.
The chart below shows the Central Bank’s most recent inflation forecast.
Macroeconomic forecast
In addition to its inflation forecasts, the Central Bank publishes forecasts of developments in other economic variables over a horizon of three years. The national accounts provide the main foundation for the assessment of the state of the economy. In addition, Bank staff prepare an independent assessment using statistical analysis of developments in key variables, with consideration given to high-frequency indicators; surveys; and discussions with corporate executives, institutional directors, and labour market institutes. The Central Bank’s quarterly macroeconomic model (QMM) is the tool used to manage this information.
Central Bank of Iceland macroeconomic forecast MB 2021/3
The chart below shows the Central Bank’s most recent GDP growth forecast.
Quarterly macroeconomic model (QMM)