European and national authorities should launch a comprehensive strategy that combines a range of suitable tools to deal effectively with Europe’s NPL problems. A key aspect of that strategy will be aligning incentives between the parties involved: banks, investors and the authorities. A number of tools look particularly promising. National asset management companies (AMCs), if designed correctly, have been successful in relieving banks’ NPL burdens and recovering asset value. A blueprint for national AMCs in the euro area – essentially, a manual for setting up an AMC – would save authorities time and money. In addition to clarifying in detail how AMCs can be made compatible with the EU legal framework, such a blueprint should identify international best practices for key aspects of AMCs such as eligible asset classes, participation requirements, 1/2  BIS central bankers' speeches  asset valuation, capital and funding structures and governance. Apart from AMCs, securitisation schemes also have the potential to kick-start the NPL secondary market, but may require public intervention to signal that governments are determined to follow through with structural reforms that will improve asset valuations. NPL trading platforms or clearing houses should also be fully explored, even at euro area level, to increase NPL transparency and stimulate transaction activity. To be successful, however, all of these options require a considerable push for structural reforms related to debt enforcement and a reduction of information asymmetries. If these measures become credible, investors will recognise the shift in policy and should ultimately be willing to pay higher prices for NPLs.

It must be clearly shown which principles we have based our monetary policy decisions on and what information our conclusions are based on. As monetary policy affects the economy with some time lag, the monetary policy decisions must be based on forecasts, as I mentioned at the start. Good bases for decisions in the form of accurate forecasts are thus an important factor in the success of monetary policy. But future developments in inflation and other variables are uncertain. For one thing, there is the uncertainty linked to the statistical methods and models, as certain fundamental parameters vary over time. For another thing, there are a number of other factors that can affect inflation  BIS Review 138/2007  1  in a way that is very difficult to predict. For instance, increased geopolitical unease can push up the oil prices, or an unexpected outbreak of a disease among animals can lead to a rapid rise in food prices. When central banks make forecasts, it is therefore increasingly common that they put a band around the forecasts that measures their uncertainty. These bands help provide information about the uncertainty in the forecasts and also make it easier to communicate the monetary policy alternatives that may arise in the future. But what do we know about the forecasting performance of the Riksbank? Forecasting performance is evaluated both internally and externally Forecasting performance can be evaluated in many different ways. There are a number of statistical methods that can be used to analyse how accurate the forecasts are.