Svante Öberg: Monetary policy's Catch-22 - uncertainty
Speech by Mr Svante Öberg, First Deputy Governor of the Sveriges Riksbank, to invited
guests at the Sveriges Riksbank, Stockholm, 6 December 2011.
* * *
Monetary policy has to be based on forecasts. But our ability to make forecasts is almost
non-existent. This is what I call the Catch-22 of monetary policy.1
This is, somewhat incisively, what my speech is about. One can also describe it as follows.
Monetary policy acts with a lag and must therefore be based, at least partly, on forecasts.
The problem is that our forecasting ability is very limited - small at one year ahead and
almost non-existent at two and three years ahead. We should therefore put more energy into
analysing the economy's initial position and making forecasts for the coming year. Further
ahead it is more a question of producing possible scenarios for economic developments.
I intend to devote this speech to the subject of how to view uncertainty in monetary policy. I
shall begin by describing my own earlier experiences of forecasts and uncertainty. I shall
then go on to describe the uncertainty in the Riksbank's forecasts. After this, I shall discuss
how one should view uncertainty and monetary policy, first in theory and practice, and then in
nine suggestions for monetary policy. I shall conclude with some reflections on monetary
policy and summarise my main message.
Forecasts are usually wrong
I learned how difficult it is to make forecasts during my time at the Ministry of Finance and at
the National Institute of Economic Research. During different periods I was responsible for
both medium-term forecasts and cyclical forecasts at the Ministry of Finance. The
mediumterm forecasts within the framework of the long-term surveys were to a great extent a more
or less sophisticated projection of trends. They missed recessions and were only accurate
when reality followed the previous trend (see Figure 1).2
The Ministry of Finance's cyclical forecasts are based on more information, including
changes in taxes and expenditure in the government budget. Like the forecasts made at the
Riksbank, they are used as a basis for policy decisions. But they are also usually wrong,
which is a problem with regard to using fiscal policy to stabilise economic activity. Sometimes
political aspects also have significance, such as when we deliberately had cautious forecasts
as a basis for the budget consolidation in the 1990s (see Figure 2). It would be less of a
problem if things turned out better than we were expecting than if they turned out worse.3
At the National Institute of Economic Research Professor Lars-Erik Öller and others
systematically analysed the forecasting performance of the institute itself and others, with
regard to both Sweden and other countries.4 The results showed that the forecasting errors
for GDP growth and inflation were large, but that the forecasts in the autumn for the coming
year were nevertheless better than simple (naïve) forecasts, such as using the average of
earlier years as a forecast. The studies showed that there was a certain forecasting ability up
to one year ahead, but no further than that. The same limitations have also been noted in
many other studies, both in Sweden and abroad.
After these experiences I came to the Riksbank, where monetary policy is to a large extent
based on forecasts several years ahead. It wasn't very easy dealing with this task, given my
previous experiences. I have discussed the Riksbank's forecasting ability in an earlier
speech, on the basis of an analysis made at the Riksbank.5 I shall in this speech describe
how I now view monetary policy and uncertainty, after six years at the Riksbank.
Uncertainty in the Riksbank's forecasts
In this section I shall describe the uncertainty in the Riksbank's forecasts. At the same time, I
would like to emphasise that the aim is not to assert that the Riksbank's forecasts are better
or worse than anyone else's. My assessment is that the Ministry of Finance, the National
Institute of Economic Research and the Riksbank make forecasts of roughly the same quality
seen over time. My aim is to describe the uncertainty and then to discuss how it should be
dealt with in conducting monetary policy. At the Riksbank we regularly report the uncertainty
in our forecasts. We do this in the form of scenarios that describe developments under
different assumptions, in report texts when we run through different areas and in fan charts,
which show how accurate the forecasts usually are.
GDP and inflation - limited forecasting ability one year ahead, none at two and three
years ahead
The Monetary Policy Reports and Updates include, for instance, four standard figures that
show the uncertainty of the forecasts. Three of them refer to GDP growth, CPI inflation and
CPIF inflation. They show 50 per cent, 75 per cent and 90 per cent uncertainty bands for the
forecasts of up to three years ahead (see Figures 3-5). The uncertainty bands are based on
the Riksbank's historical forecasting errors for these variables.6 The uncertainty increases as
the forecast horizon lengthens.
When one evaluates forecasts, one usually compares the current forecasts with a naïve
forecast. Here I shall use the average of the series as a naive forecast. The forecasting error
is measured as the standard deviation between outcomes and forecasts and the forecasting
error for the naïve forecast is measured as the standard deviation for the outcomes
themselves. The forecasting performance can then be expressed as how much smaller the
actual forecasting error is than the forecasting error of the naive forecast. This measure of
the forecasting performance is 1.0 if our forecasts are perfect and 0.0 if our forecasts are no
better than the historical average.
Figure 6 shows the forecasting performance for GDP growth and CPI inflation at
1-12 quarters ahead.7 As the figure refers to annual percentage changes, the first quarters
are mixtures of known outcomes and forecasts. It is only four quarters after the most recent
known outcome that we have pure forecasts. The figure shows that the forecasting error with
regard to forecasts one year ahead is just over 20 per cent less than the forecasting error for
the intended naïve forecast and not at all less two and three years ahead. There is thus
some forecasting performance for GDP growth and CPI inflation up to one year ahead, but
no forecasting performance in the longer run. At two and three years ahead we had on
average made equally good forecasts if we had used the average growth or inflation rate
instead of our own forecasts.8
Unemployment - better forecasting ability than for GDP and inflation
Unemployment is more sluggish than GDP growth. If unemployment is very high to start with,
it is probable that it will also be high in a year's time. This should mean that the forecasting
ability for unemployment, and other measures of resource utilisation, are better than for GDP
growth and inflation. Our forecasting performance with regard to unemployment is quite
rightly slightly better, with a forecasting error one year ahead that is 30-40 per cent lower
than the forecasting error for the naïve forecast (see Figure 7).9 However, there is still no
forecasting ability two and three years ahead.
The repo rate - is sometimes outside of the uncertainty bands
The fourth standard figure in our Monetary Policy Reports and Updates refers to the forecast
for the repo rate and the uncertainty concerning this (see Figure 8). There is an important
difference of principle between the decision on the repo rate up to the next monetary policy
meeting and the assessment of the repo rate path after that, that is, the forecast for the repo
rate over the coming three years. We are careful to point out that the repo-rate path is "a
forecast, not a promise". The uncertainty bands shown in the figure are based on forecast
errors for risk-adjusted market rates from 1999 to 2007 and after that on the Riksbank's own
forecast errors. The uncertainty increases as the forecast horizon lengthens, here, too. The
figure shows, for instance, that the repo rate in three years' time will with a 90 per cent
probability be between 0 and 7 per cent. And there is a 10 per cent probability that it will be
outside of this interval!
The fact that the repo rate is sometimes outside of the uncertainty bands is illustrated by the
forecast in September 2008 just before the financial crisis hit Europe and Sweden with full
force (see Figure 9). The repo rate was cut over the following three quarters to a much lower
level than the lower limit for the 90 per cent uncertainty band.
Uncertainty in theory
Our forecasting ability is thus very limited one year ahead and almost non-existent two and
three years ahead. The best forecast we can then make is normally to assume that inflation
will be 2 per cent in two and three years' time. But that is not much help when shaping
monetary policy. At the same time it is reasonable to assume that monetary policy will
actually affect inflation two and three years ahead and that we therefore need forecasts as a
basis for monetary policy. So what can we do to manage the uncertainty in monetary policy?
In a linear model, where inflation depends on the interest rate and an uncertainty term with a
mean value of zero, where the parameters are known and constant, and with a quadratic
objective function (loss function), the uncertainty does not matter with regard to which
interest rate should be chosen to minimise the loss function.10 It is enough to take into
account the mean value for the forecast: the uncertainty over future shocks does not affect
the optimal monetary policy (in technical terms one says that certainty equivalence holds).
The uncertainty then does not affect the decision on the repo rate, but it does affect target
fulfilment.
However, there are several aspects that mean that one cannot rely on the results obtained in
this type of model. The Riksbank reports a main forecast that is not merely a model forecast;
it is based on both models and judgement. It is not easy to explicitly report all of the
assessments and deliberations behind the overall results. However, it is possible to do this
within the framework of a formalised model like the Riksbank's macro model Ramses.11 But
of course, this is not a perfect description of reality. There is uncertainty over both the
structure of the model and its parameters. Other models would probably reach other results
with regard to the most appropriate monetary policy.
Another question concerns the nature of the forecasts. The forecasts the Riksbank now
reports are in principle intended to be unbiased forecasts. But as Goodhart and Rochet
pointed out in their evaluation of the Riksbank's work, these assumptions do not hold in
reality.12 In practice, longer-term forecasts are rarely unbiased. They can rather be regarded
as possible scenarios contingent on certain external conditions. Normally, there are several
possible scenarios and there can be great uncertainty over which scenario monetary policy
should be based on.
There is also uncertainty over which target variables should actually be used. I shall return to
this question in the next section.
Nine suggestions regarding monetary policy
Although it may be simple in theory to determine how to manage uncertainty in monetary
policy, it is not at all simple in practice. So how should the uncertainty surrounding our
forecasts affect the monetary policy decisions? How should we deal with the Catch-22 of
monetary policy, that monetary policy must be based on forecasts but that our forecasting
ability is almost non-existent? This is what this section is about.
Be clear regarding the monetary policy objective
We should be clear about the objective of monetary policy. There should be no uncertainty
about what this is. The Riksbank has worded it as keeping inflation measured in terms of the
consumer price index (CPI) at 2 per cent a year and the Government and the Riksdag (the
Swedish parliament) have expressed support for this. But the CPI is affected by our own
decisions on the repo rate in that mortgage rates are included in the CPI. If we raise the repo
rate to subdue inflation in the long run, this leads to inflation temporarily increasing instead of
falling. We therefore also follow and analyse a large number of other measures of inflation,
such as the CPI with a fixed interest rate (CPIF). These are better indicators of the
underlying inflationary pressures. Moreover, in the longer run CPI inflation and CPIF inflation
coincide.
But it has turned out that uncertainty sometimes arises as to which target variable the
Riksbank uses, whether it is the CPI or the CPIF. Sometimes it has been said that target
fulfilment would be better if CPIF inflation was closer to 2 per cent during the forecast period,
even if this means that CPI inflation is further from 2 per cent. I don't believe this is correct.
However, it is natural to highlight the CPIF as a measure of underlying inflation when the
forecasts for the CPI and the CPIF differ, and this is because of the Riksbank's own
monetary policy.13
Be clear about resource utilisation
The Riksbank also endeavours to stabilise production and employment around sustainable
paths of development. However, neither the Riksbank nor the Government and Riksdag have
specified what are considered to be sustainable paths for production and employment. We
usually try to ensure that resource utilisation is normal towards the end of the forecast period.
However, it is not entirely clear what we mean by resource utilisation. We use a broad
approach to describe resource utilisation and make an overall assessment based on a
number of different measures. Some measures are based on GDP, employment, the number
of hours worked and unemployment related to a normal or sustainable level. For example,
GDP is related to potential GDP and unemployment to a sustainable level. Other measures
are based on business tendency surveys and other high-frequency data. But no forecasts
are made for these. Uncertainty is not reported for any of these measures in the same way
as for GDP growth and inflation, either at the starting point or during the forecast period.
We should be clearer about what we mean by resource utilisation. As things stand now,
there is no unanimous agreement among the Executive Board regarding how to define
resource utilisation as a target variable. Of course, it is an undesirable situation that
something as important as a target variable for monetary policy is not clearly defined. It
should not be a question for individual Executive Board members to determine the objective
for monetary policy; it should be a question for the Riksbank as an institution, or even for the
Government and Parliament.
I believe that we should use the GDP gap as the main measure of resource utilisation. This is
despite the well-known difficulties in determining the GDP gap.14 I believe that one can make
a fairly good assessment of the GDP gap by combining a production function approach with
business tendency data and other short-term statistics.15 GDP is a central variable in the
forecasting work and the variable that, despite its well-known deficiencies in measuring
welfare, is most closely-related to welfare.16 We should also report fan charts with uncertainty
bands for the GDP gap and other measures of resource utilisation, in particular
unemployment, to illustrate the uncertainty in these measures, too.
It is important to make good judgements of resource utilisation at the outset and to
endeavour to ensure it is neither too high nor too low in the coming period. This can
contribute to stabilising inflation close to the target. Resource utilisation is namely not only a
target variable, but also an indicator of future inflation. Figure 10 shows the correlations
between some measures of resource utilisation - GDP gap, hours worked gap, labour
shortages and the RU indicator17 - and CPI inflation.18 The correlation is highest for a lag of
4-6 quarters.
Also take into account credit expansion and asset prices
We should take credit expansion and asset prices into account more when we formulate our
monetary policy. And we should develop and formally integrate the forecasts for credit
growth and asset prices into the base for the monetary policy decisions, as well as reporting
the uncertainty of the forecasts.
Far too many countries have allowed their expansion in credit to be too high for too many
years and this has led to very large problems when the bubbles have burst. The low interest
rates have been a contributory factor to this trend. There has also been a recent shift in
opinions coming out of academic research, from a broad resistance to taking financial
stability into account when shaping monetary policy19 to greater openness to the view that
there may be good reasons for doing so.20
Even before the financial crisis hit Europe and Swedish with full force in autumn 2008, there
were concerns in the Executive Board that the credit expansion was too rapid and that
housing prices were increasing too quickly so that a bubble might build up, and later burst to
cause a severe recession. This was not the case in Sweden, but did happen in the United
States and several countries in Europe. During the crisis years 2009-2010 the endeavour
was instead to use low interest rates and liquidity assistance to the banks to avoid a credit
crunch that could intensify the crisis. And we succeeded well in this. During the entire period,
the banks' total lending to households and companies in Sweden increased (see Figure 11).
Put greater emphasis on the initial situation and the forecasts for the coming year
We should put greater emphasis on the initial position and the forecasts for the coming year
than on the long-term forecasts. At the Riksbank, considerable resources are put into
analysing the state of the economy. The statistics received are analysed and commented on
regularly. A large number of models have been developed to assess the current situation
(what is known as nowcasting) and how we should revise our forecasts in the light of new
statistics. We should continue with this work.
Personally, I have put a lot of time and energy into analysing the forces behind inflation. This
has included analysing various measures of underlying inflation, understanding what affects
the difference in inflation in the euro area and in Sweden, keeping up-to-date with what is
happening in the wage bargaining rounds in the labour market, understanding how
developments in the global economy affect the prices of food, commodities and energy, how
inflation expectations develop, the level of resource utilisation when measured in different
ways and how the measures of resource utilisation have been affected by the recession
following on from the financial crisis.
Focus on the repo rate over the coming six months
Correspondingly, we should concentrate on assessing the repo rate in the coming period, as
there is such great uncertainty over the repo rate in the longer run. The Riksbank sets the
repo rate. This means that we normally have a fairly good idea of the repo rate level over the
coming period, although the situation can sometimes change rapidly and radically as it did in
autumn 2008. Market expectations prior to a monetary policy meeting also normally agree
with the decision we make regarding the repo rate. Any surprises in the actual decision on
the repo rate are normally very minor (see Figure 12).
However, there is great uncertainty over the repo rate in the longer run. This is illustrated by
the fan chart showing the repo rate. Whether the repo rate path will agree with the forecast
will of course depend on how the economy develops in the future. If inflation and resource
utilisation develop in line with the main scenario, the repo rate should follow the repo-rate
path outlined in the main scenario (the middle line in the figure). However, the uncertainty
regarding the way the economy will develop leads to uncertainty over the future interest rate,
too, which is reflected in the fan around the repo-rate path.
My impression is that there is normally very little opportunity to influence market expectations
further than six months ahead by publishing a repo-rate path. Goodhart and Rochet also
show in their evaluation that it is the Riksbank's repo-rate path that adjusts to market rates
rather than vice versa, except in the short term, when the influence is mutual. But they also
point out that the data period is so short that it is not possible to draw any far-reaching
conclusions.21
Check against other monetary policy frameworks
We should check the repo rate produced in our forecasts and models against other monetary
policy frameworks. Personally, I usually check to see whether the repo rate level is
reasonable by looking at what the Taylor rule would imply. In the original Taylor rule, the
policy rate is determined by inflation and the GDP gap.22 According to this rule, the policy
rate shall be set equal to the long-term level of the policy rate plus 1.5 times the deviation in
inflation from target plus 0.5 times the deviation in GDP from potential GDP. The Taylor rule
has the advantage that it is based solely on information in the current situation and not on
forecasts. Measured inflation is used as an indicator of future inflation, which may be
reasonable if there is some sluggishness in the inflation process. It may also be reasonable
to include resource utilisation, as this affects future inflation.
The Taylor rule functioned well in connection with the financial crisis 2008-2009. It showed
then that we should cut the repo rate at roughly the same speed and by roughly as much as
we cut it. If we had instead relied on the Ramses model, we would have cut the repo rate
much more slowly. Ramses has an estimated monetary-policy rule that is based on how the
Riksbank has reacted earlier, and this has normally involved changing the repo rate in small
steps. The starting point for the repo rate therefore has a strong influence as to what level
the model will produce for the repo rate in the short term. The model's estimated rule was
therefore far too sluggish in the exceptional situation that arose. It can also be mentioned
that Norges Bank, because of the uncertainty of the models it uses, also gives some weight
to simple monetary-policy rules such as the Taylor rule.23
See longer-term forecasts than one year as potential scenarios
We should regard the forecasts for longer than one year ahead as potential scenarios rather
than unbiased forecasts. It is quite simply impossible to make any reliable forecasts for two
and three years ahead. My opinion is that it is normally fairly meaningless to have a firm
opinion of what will happen in two and three years' time. But there are exceptions,
particularly in situations where resource utilisation is very low. During 2008-2009 we
assessed that the repo rate would be at an exceptionally low level for one year and we
backed this up by lending around SEK 300 billion to the banks at this low interest rate for one
year.
We should continue to report a main scenario for economic developments and the repo rate
over the coming three years, a scenario where inflation approaches 2 per cent and resource
utilisation approaches a normal level. But we should regard this merely as a potential
scenario. It is important that monetary policy follows a predictable pattern. We endeavour to
avoid surprising the market. This means that we normally change the repo rate and the
reporate path in gradual small steps, where the steps are due to new information received since
the most recent monetary policy meeting, and that we react in roughly the same way to the
same type of changes in the new information. Such stability means that we can avoid
causing problems on the financial markets, and that we can have a greater impact on the
markets when an unexpected event occurs.
We should also continue to analyse the consequences of various sequences of events. This
can be how monetary policy should be adjusted to the rate of the recovery from the financial
crisis, how global market prices and exchange rates may affect monetary policy, the
monetary policy consequences of alternative outcomes in central wage agreements, what
will happen if the sovereign debt crisis in Europe worsens, and so on. We should therefore
continue to make forecasts and draw up alternative scenarios as a basis for our monetary
policy.
Report the uncertainty involved in comparisons of repo-rate paths
We should report the uncertainty involved in the comparisons of forecasts for economic
developments with different repo-rate paths that we regularly describe in our Monetary Policy
Reports.
Calculations of alternative scenarios are often made using Ramses, for practical reasons. My
personal opinion is that the calculated effects of changes in the repo-rate path are
unreasonably large. If this is the case, we would need to adjust the repo rate more so that
monetary policy is well balanced. However, one can in theory show that the greater the
uncertainty prevailing as to the effects of the interest rate on inflation, the less monetary
policy should react when inflation deviates from the target.
Within the framework of Ramses it is possible to place in order of preference different
monetary-policy alternatives in figures, based on their average squared deviations from the
targets for inflation and resource utilisation during the forecast period (see Figure 13).24
These figures, unlike the fan charts shown earlier, do not report the uncertainty. Goodhart
and Rochet point out in their evaluation that the construction with mean squared deviations
has its limitations, as it focuses on central expected outcomes and thus overestimates the
certainty in comparisons of alternative outcomes and that the figures should be accompanied
by fan charts that show the probability intervals for both production and inflation.25 I consider
it important to calculate and report the uncertainty in the comparisons, if this type of figure is
going to be used to a greater extent.
Develop the models so they can process different repo-rate paths
We should develop our models so that they can process different repo-rate paths. One
problem with regard to the base for monetary policy decisions is that the Ramses model can
only process one repo-rate path. It cannot handle a situation where the Riksbank's repo-rate
path differs from the market's repo-rate path. The repo-rate path used in a forecast with the
Ramses model also implicitly determines the current longer-term interest rates along the
entire yield curve, and these may differ from the interest rates currently observed in the
market. This means that problems arise with regard to analysing developments, when the
Riksbank's repo-rate path differs from the market's repo-rate path. Further development of
the model would improve the base for monetary policy decisions.
I think that monetary policy can best be understood in terms of the yield curve. The Riksbank
implements its monetary policy by determining the repo rate, the interest rate the banks face
when depositing money in accounts with the Riksbank overnight, or when borrowing money
overnight. Thus, the Riksbank determines the short end of the yield curve. But the market
determines the long end. Everything in between is a combination of the Riksbank's influence
and market forces. The long end is affected by many factors, not merely expectations of the
repo rate. It may, as recently, be a question of a flight to safety, which has pushed up, for
instance, Greek interest rates and pushed down American, German and Swedish interest
rates. The Swedish yield curve is currently much lower than is consistent with the Riksbank's
repo-rate path (see Figure 14).
Moreover, the banks' lending rates are affected by other factors than the repo rate, which
has led to increased spreads between the repo rate and the banks' lending rates. This
means that what is known as the transmission mechanism - how the Riksbank's repo rate
affects economic developments - has probably changed. But it is difficult to say how it has
changed. On the whole, we should develop the financial part of our macroeconomic models
to give greater consideration to the financial markets.
Conclusion
When I look back at monetary policy since the current monetary-policy regime, with a floating
exchange rate and an inflation target, was introduced at the beginning of 1993, I think that it
has on the whole functioned fairly well. One might possibly think that monetary policy was
too tight in 1994-1995 when the Riksbank raised the repo rate at the same time as the
budget consolidation work was holding back inflation. However, it was important to bring
down inflation and inflation expectations to a much lower level than in the 1970s and 1980s.
One might also think that the assumption of an unchanged repo rate that was used as a
basis for the forecasts during the first years was too simple. On the other hand, one has to
see this more as a part of the communication strategy that was being followed then. And it
worked. Inflation expectations fell and have been established close to the target.
I also think that monetary policy has worked well during the six years, 2006-2011, that I have
been a member of the Riksbank's Executive Board. CPI and CPIF inflation have on average
been 1.7 and 1.8 per cent a year respectively. This is somewhat lower than the inflation
target. However, given that the world has undergone the deepest recession since the 1930s
during this period, it should nevertheless be regarded as a good result. Moreover, the
Riksbank contributed to slowing down the fall in production and employment when the
financial crisis hit Sweden with full force in autumn 2008. Partly by quickly and forcefully
cutting the repo rate, and partly by supplying around SEK 500 billion in liquidity to the
banking system.
I have in this speech discussed the uncertainty in monetary policy. As monetary policy acts
with a lag, it must be based, at least partly, on forecasts. However, our forecasting ability with
regard to GDP growth and inflation is very limited one year ahead and largely non-existent
two and three years ahead. This is what I have called the Catch-22 of monetary policy.
We should therefore place greater emphasis on analysing the initial situation and making
forecasts for the coming year. We should also concentrate on assessing the repo rate over
the coming six months, as there is such great uncertainty over the repo rate in the longer run.
The level of the repo rate should be checked against other monetary policy frameworks, such
as the Taylor rule. And we should be clear about the objective of monetary policy.
We should regard the forecasts for longer than one year ahead as potential scenarios rather
than unbiased forecasts. We should continue to report a main scenario for economic
developments and the repo rate in the coming three years, in which inflation approaches
2 per cent and resource utilisation approaches a normal level, but we should regard it as
such - a potential scenario. We should also continue to analyse the consequences of other
sequences of events.
The base for monetary policy has improved gradually since the current monetary policy
regime, with a floating exchange rate and inflation target, was introduced. A large number of
models have been developed and the forecasts are now based on the Riksbank's repo-rate
path that can differ from the market's forward rate curve. However, the base should be
developed further. I have taken up some such areas in this speech:
 The forecasts for the GDP gap and other measures of resource utilisation should be
developed further and the description of the uncertainty in these forecasts should be
shown in the same way as the uncertainty in the GDP growth and inflation forecasts.
 The Riksbank should also take into account credit expansion and asset prices in its
monetary policy. The forecasts for credit growth and asset prices should be
developed and formally integrated into the materials on which the monetary policy
decisions are based. In this case, too, it is important to show the uncertainty in these
forecasts.
 The Riksbank's models should be developed to be able to handle the difference
between the Riksbank's repo-rate path and the market's forward rate curve. We
should also describe the uncertainty in comparisons of different repo-rate paths.
Monetary policy is a more or less continuous process. We normally make decisions on the
repo r