central bank can actually deliver. 6. today ’ s financial crisis these days the world is in the throes of a severe financial crisis – the deepest crisis since the 1930s. many foreign banks have suffered large losses and a sense of fear is prevailing. we are entering a global economic recession. the authorities are taking action to restore confidence in the financial industry. macroeconomic policy measures are aimed at limiting the crisis - related effects on the real economy. it is clear that regulatory improvements will eventually be needed so that the financial industry can assume a greater role in safeguarding their own credibility. the credibility of central banks is also being tested in this situation. in dramatic cases, such as iceland, we are again seeing an example of runaway inflation when confidence in government finances is severely impaired. in this situation, inflation targeting at the central bank of iceland did not suffice. in iceland, the problems stemmed from an over - dimensioned financial industry and fundamental macroeconomic imbalances. when the banks encountered problems, the authorities provided support in an attempt to secure a functioning financial system. as the icelandic state did not have the financial strength to take over the banks ’ total commitments, confidence in its currency and monetary policy was also shattered without the central bank being able to redress the situation. the financial crisis is a global one, and the norwegian economy will be affected. however, our country is in a sound position to curb crisis - related effects. in norway, government finances are healthy, the banking system is solid and there is confidence that monetary policy will continue to maintain a stable value of money. this means that we can use the interest rate actively. we have already reduced it in two increments by a total of 1 percentage point, and we are willing to use the interest rate to a further extent if necessary. central banks still face many unknowns about economic behaviour. there is nothing in our history that indicates that monetary policy, or any economic policy for that matter, has found its final form. but there is one certainty : keeping promises and creating confidence are fundamental both for monetary policy and more generally for growth and development. the man who built this house, hans rasmus astrup, died in 1898, just before the housing market crash in kristiania and the ensuing crisis. house prices plummeted by more than 50 per cent at that time and several banks collapsed in the next few years. the outfall of the woodford, michael ( 2003 ) : interest and prices,

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. 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 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. this issue is on our research agenda. we have initiated a three - year research project, where we will seek to review different aspects of our inflation targeting framework, including the question of how to take financial stability into account. moreover, for a small open economy, large terms of trade shocks may represent a particular challenge, also for monetary policy. in our search for answers and our efforts to steadily improve our implementation of flexible inflation targeting, we look to academia. therefore, let me again emphasise how much i appreciate the opportunity to be here today. thank you for your attention. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches