Nevertheless, statements related to the interest rate path can still be useful as they can provide  4  Arguments against the publication of an explicit interest rate forecast by the central bank are discussed in more detail in Goodhart, C. (2001): “Monetary Transmission Lags and the Formulation of the Policy Decision on Interest Rates”, Federal Reserve Bank of St. Louis Review, July/August 2001 (http://research.stlouisfed.org/publications/review/01/05/165182Goodhart.qxd.pdf) and Mishkin, F. S. (2004): “Can Central Bank Transparency Go Too Far?”, NBER working paper no. 10829 (http://www0.gsb.columbia.edu/faculty/fmishkin/PDFpapers/56959-w10829.pdf)  5  “In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period. ", see press release from the Federal Reserve, Board of Governors, 12 August 2003, www.federalreserve.gov. 4  BIS Review 6/2006  information about why a particular path has been chosen. In addition, such statements can provide some information about our response to conditions outside the Bank’s control. Second, when the central bank deviates from the original projection for future interest rates, an explanation has to be provided. The interest rate forecast is based on incomplete information about the current situation and the functioning of the economy. If the economy is exposed to disturbances, the central bank's assessment of these disturbances must be communicated. The same applies if the central bank should change its view of the functioning of the economy. Professional financial market participants and other economic agents will have little difficulty in understanding that the interest rate will occasionally have to deviate from the forecast.

Some economists stress that a published interest rate forecast may create problems in the practical implementation of monetary policy. Results published in the literature, however, seem to point in a different direction. First, any constraints a published interest rate forecast might entail are not necessarily a disadvantage; on the contrary, they may be an advantage. Indeed, if interest rate expectations can be influenced, a response pattern that is binding for a shorter or longer period will in many cases be useful for a central bank. By being committed to a response pattern, the need for interest rate changes today may be reduced. From mid-2003 to mid-2004, for example, the Federal Reserve was concerned that inflation might fall too low. The Fed therefore indicated that market participants should expect an expansionary monetary policy for longer than usual in periods of increasing activity. 5 Norges Bank has made similar statements about the future interest rate. For example, from mid-2004 to the beginning of 2005, the Bank stated that “the prospect of continued low inflation in Norway also implies that we should lag behind other countries in setting interest rates at a more normal level”. Statements such as this are intended to influence market expectations. Similarly, there may be advantages of publishing an explicit interest rate forecast. This may lead to commitments that increase the credibility of consistent interest-rate setting by the central bank.