Reference is made in particular to Archer, D. (2005): “Central-bank communication and the publication of interest rate projections”, Faust, J. and E. Leeper (2005): “Forecasts and inflation reports: An evaluation”, Svensson, L.E.O. (2005): ”Further Developments of Inflation Targeting" and Woodford, M. (2005): “Central-Bank Communication and Policy Effectiveness". 3  This is further discussed by Woodford, M. (2005): “Central-Bank Communication and Policy Effectiveness", see footnote 2. BIS Review 6/2006  3  If the Bank’s interest rate forecast is different from market expectations, then this is useful information, not only for market participants, but also for the central bank. This may indicate that the central bank and market participants have a differing perception of future economic developments. It may also reflect differing views concerning the trade-offs in monetary policy. Market expectations, as reflected in forward rates, will be a way of cross-checking the Bank’s interest rate forecast. If Norges Bank’s interest rate forecast deviates from market expectations, the Bank should be able to explain this satisfactorily in order to influence interest rates in the money market. In Inflation Report 3/05, there were only minor differences between Norges Bank’s interest rate path and calculated forward rates up to 2007. Forward rates indicated that interest rates would then level off, while our forecast indicated a continued gradual rise up towards a more normal level. After the publication of the Report and up to end-January, market expectations have fallen. This shows that the interest rate path envisaged by the Bank and the path expected by the market can differ.

(2000): “Estimating and interpreting interest rate expectations”, Economic Bulletin 3/2000, Norges Bank, and Myklebust, G. (2005): “Documentation of the method used by Norges Bank for estimating implied forward rates”, Staff Memo 2005/11, Norges Bank. Both articles are available on www.norges-bank.no. 2  BIS Review 6/2006  As from Inflation Report 3/02, the Bank has published a recommended interval for the sight deposit rate over the following four months. To begin with, the interval was published at the end of the period to which it applied. Since Inflation Report 2/04, it has been published ahead of the period. The interval reflects the Bank’s sight deposit rate projection for the following four months, conditional on economic developments that are approximately as projected. The interval is an important part of the Bank’s communication strategy. Since we now also publish an interest rate projection for the entire projection period and not only for the next four months, economic agents gain broader insight into the analytical base, the assessments made and the Bank’s response pattern. Possible advantages of an explicit interest rate projection In forecasting inflation and output, there may be a number of advantages to basing forecasts on an interest rate projection that in the Bank’s opinion provides a reasonable balance between the different monetary policy objectives. 2 A communication such as this makes it clear which interest rate path, in the Bank’s opinion, provides a balance between monetary policy objectives.