13 The index correlates well with our forecast for the change in the key policy rate over the coming year, derived from each vintage of our interest rate forecast. The chart is consistent with households being well informed about the interest rate changes predicted by Norges Bank. Concluding remarks Let me summarise: Norges Bank has provided forward guidance through publishing conditional forecasts for the key policy rate for almost a decade. Our overall experience is positive. We have indications that our reaction pattern is well understood, that agents understand the conditionality of our forecast and that they do pay attention to our predictions of future rates. Over time, however, we should be measured on whether we meet our overriding objective, price stability. A credible interest rate forecast shedding light on the reaction pattern of the central bank provides a clear commitment to price stability and contributes to anchoring expectations. 13  When the index is above 50, the share of households that expect bank rates a year ahead to be higher than today is larger than the share that expect it to be lower. BIS central bankers’ speeches  7  How forward guidance is best provided will depend on economic and institutional factors. A decade of forward guidance in Norway indicates, however, that regularly publishing our own interest rate forecasts is a robust strategy. However, there are unsolved issues. After the international financial crisis, robustness and the interaction between monetary policy and financial stability have become more pressing concerns for monetary policymakers.

Tripathy et al, “Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the UK” show that constrained banks issued fewer high LTI mortgages after the FPC’s policy was introduced. They also find evidence supporting the macroprudential benefits of the policy. The local areas with greater exposure to constrained lenders experienced smaller declines in house prices in the aftermath of the EU referendum in June 2016, when house prices fell across most UK regions. 15  11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  The distinction between expectations effects and credit constraints matters in another way. To the extent that demand for housing is simply subdued by dampened household expectations about the future, there is no ‘loss’ to households. If however, demand for housing is held back by credit constraints, transactions which are desired are ‘lost’. One needs to be careful however about assuming that relaxation of credit constraints will lead to all otherwise ‘lost’ transactions taking place. The thought experiment I carried out earlier suggested that almost 10 million additional transactions would have occurred from 2007 to 2020 had transactions remained at their-pre financial crisis level. But this assumed that house prices remained at the actual levels we saw over the period. In the absence of increased supply, the evidence suggests that much of the additional demand would have fed into higher prices, raising indebtedness in the short term but eventually choking off the additional demand.