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.

Looking ahead, one can see potential risk factors. One of them is production clustering. If the recently observed trend for country specialization (e.g. Slovakia specializes in producing cars, India in business process outsourcing) holds on, it may increase the risk of asymmetric shocks in the future (De Grauwe 2003). Another example of a possibly distant future asymmetric “shock” is global warming. A recent report cited by Financial Times (FT, 6 January 2007) shows that the Northern members of the eurozone are likely to profit and the Southern members to suffer from the climate change. Nevertheless, whatever the likelihood of shocks, it remains of crucial importance to maintain a balanced fiscal perspective and flexible labor market which can absorb shocks, should they arise. Now let me move to the possibility of rising micro- and macroeconomic imbalances. They can take the form of lending booms, current account deficits or increasing inflation pressure. Such a set of symptoms in a monetary union member country reveals in most cases one common cause – too low a level of real interest rates. Economists have for a long time argued that each economy has an appropriate, long-run level of the real interest rate called the natural rate of interest (Wicksell 1898). Keeping interest rates at this (unfortunately unobserved) level should guarantee that the economy will remain in equilibrium – output will not exceed production capacity and inflation will remain stable (Woodford 2003). This is what implicitly or explicitly most inflation targeting central banks are trying to achieve.