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.

Therefore, the ECB strongly welcomes the Commission’s proposed regulations, which strike the right balance between the need to revive the European securitisation markets and yet maintain the prudential nature of the framework. Timely adoption of the final rules is essential for creating regulatory certainty for issuers and investors alike, thus supporting the revitalisation of the market. The ECB’s contributions to regulatory initiatives at international level Let me now turn to the international regulatory agenda, also in response to the call by ECON to receive more information on these issues. As I argued before, initiatives at European level are not taking place in isolation. Last November, the Financial Stability Board finalised the total loss-absorbing capacity (TLAC) standard for large, complex, global systemically important banks. TLAC is an important milestone in overcoming the “too big to fail” problem. It now needs to be implemented in the European framework. To further reduce risk-taking and strengthen the resilience of the banking system, the finalisation and implementation of the leverage ratio and the strategic review of the capital framework should be matters of priority. The Basel Committee concluded its work on the definition of the leverage ratio, the trading book requirements and is working to conclude the revision of risk-weighted assets framework both for the standardised approach and for the use of banks’ internal risk models before the end of the year. Swift legislative action on the key unfinished parts of the Basel III agenda will provide clarity to the financial system and support the latter in financing the recovery.