, pp. 1058 - 1086, and woodford, michael ( 2003 ), interest & prices – foundations of a theory of monetary policy, princeton university press. angeloni, ignazio, luc aucremanne, michael ehrmann, jordi gali, andy levin and frank smets ( 2004 ), “ inflation persistence in the euro area : preliminary summary of findings ”, presented at the ecb ’ s conference on inflation persistence in the euro area, frankfurt am main, 10 - 11 december 2004. another topic currently of interest to academic research is whether a price level target may be better than an inflation target. with a price level target, high inflation today must be followed by low inflation tomorrow. this is not the case with an inflation target. one advantage of a price level target is that it may reduce the uncertainty surrounding the price level ahead. but the view has been that a price level target results in wider fluctuations in output and employment and less stable inflation. recent literature challenges this view. 5 as far as we know, there are no concrete plans in any country to shift to a price target. a third characteristic of inflation targeting is that the central bank alone sets the interest rate - the central bank has instrument independence. one exception must nevertheless be mentioned here. in the uk, the authority to set interest rates was not transferred from the ministry of the exchequer to the bank of england until 1997, five years after an inflation target had been set. in some countries, legislation allows the authorities to review the decisions under very special conditions. this has not had any practical significance. a fourth characteristic is that central banks in inflation - targeting countries are transparent. this provides broad insight into the basis for interest rate decisions. transparency makes monetary policy more predictable. inflation targeting provides an explicit and understandable framework for clarifying and stating the reasons for the trade - offs in interest rate setting. central banks practice transparency in different ways. inflation - targeting central banks usually publish inflation reports or monetary policy reports, but there are major differences in the frequency of publication, horizons and assumptions for projections as well as the contents in general. 6 in the uk, economic developments receive broad coverage. the bank makes projections two years ahead, but only for developments in gdp and prices. sweden has a two - year horizon for the inflation target. the inflation report does not discuss the monetary policy stance. instead, this is presented in the published minutes from the monetary policy meetings. the inflation report contains relatively detailed progno

current economy policy, but their expectations of future economic policy. if economic agents expect that tomorrow ’ s policy will result in high inflation, the cost of reducing inflation may be high in terms of increased unemployment. therefore, it is important to establish confidence in monetary policy and the objective of price stability. there must be consistency between the stated objectives of economic policy and what is actually done to achieve these objectives. this is the most important reason why the implementation of monetary policy has been delegated to the central bank in norway, as has been the case in other comparable countries. in norway, responsibility for interest rate decisions was delegated to norges bank through the 1985 norges bank act and through adaptations in practice in 1986. however, confidence in the inflation target also requires that government finances are in order. one aspect of independence is that the government is not allowed to borrow directly from the central bank. in this way, it is possible to avoid a situation where the government uses the printing press to finance deficits. printing press financing will lead to inflation over time. in norway, the government ’ s possibility of borrowing directly from norges bank was eliminated by means of changes in the norges bank act in 2003. ( the change became effective 1. 1. 2005. ) now, the norwegian government has large surpluses and saves considerable amounts through the government petroleum fund. the change may therefore appear to be of little practical importance, but it is not completely uninteresting. the petroleum fund is invested abroad. the government must borrow funds to finance domestic lending and financial investment. one observation is that the prohibition would be more important if the assets in the petroleum fund were earmarked for a particular purpose and could not be used for general financing of government expenditures. but there are no plans for this. today, more than 20 countries have adopted inflation targeting. some of them have had an inflation target for more than 10 years, but many adopted inflation targeting after 1998. which countries actually have inflation targeting and when they introduced this regime is open to discussion. the following chart is based on information from t. petursson of the central bank of iceland. 2 in new zealand, the new monetary policy regime emerged as a solution to a practical problem. like most oecd countries, new zealand had experienced high and variable inflation in the 1970s and the first part of the 1980s. monetary policy was tightened and inflation fell. at this time, they needed a robust system that could ensure stable and continued low inflation.