last report in 2013. 11 the key policy rate was kept at a lower level through 2013 than projected at the end of 2012. at the same time, the forecasts for 2014 and 2015 were revised downwards. the primary reason for the revision was weaker - thanexpected developments in the norwegian economy. capacity utilisation and cost growth were both lower than projected. at the same time, there were prospects that growth ahead would be lower than previously assumed. moreover, growth among norway ’ s trading partners and interest rates abroad were lower than projected, and banks ’ lending spreads were higher than expected. conversely, a substantial depreciation of the krone through the this setup is from norges bank annual report 2013. in each monetary policy report, we present a decomposition of the contribution from different factors to the change in the interest rate path in relation to the previous report. the most recent report shows the change in the interest rate path through 2016. bis central bankers ’ speeches year, which was viewed mainly as due to an increase in the risk premium, kept the interest rate forecast from falling further. a decline in premiums in the money market also pulled in the same direction. experiences so far i have discussed the motivation for forward guidance and how we implement it in norges bank. let me now share some of our experiences with you. as a starting point, let me again address the preconditions for forward guidance to enhance the effect of monetary policy that i mentioned previously. i will try to illuminate two questions : 1 ) is our reaction pattern and the conditionality of our interest rate forecast understood? and 2 ) do we affect the expectations of economic agents? [ chart : decomposition of change in the interest rate path : forecasts ] prior to the announcement of a new interest rate forecast, many of the market analysts publish their own forecast of our interest rate path. these forecasts are usually accompanied by a discussion of the factors pushing the expected revision of our path in either direction. some analysts even publish their own assessment of our decomposition of the interest rate change, quantifying the estimated effects from different factors. the charts show the forecasts of the change in our interest rate path provided by three different macroanalysts prior to the publication of the october 2011 monetary policy report. our published change in the path and its decomposition are shown in the lower panel to the right. as shown in the chart, the forecasts are quite accurate, which is a typical pattern. we take

since the rational expectations revolution of the 1970s. in the early 1990s, theorists started to model monetary policy as setting the interest rate. 2 central bankers have since had a theoretical woodford, m. ( 2005 ) : “ central bank communication and policy effectiveness, ” nber working paper 11898. see taylor, j. ( 1993 ) : “ discretion versus policy rules in practice, ” carnegie rochester conference series on public policy 39, and henderson, d. and w. mckibbin ( 1993 ) : “ a comparison of some basic monetary policy regimes for open economies : implications of different degrees of instrument adjustment and wage persistence, ” carnegie - rochester conference series on public policy, 39. bis central bankers ’ speeches framework with both forward - looking agents and monetary policy specified in terms of the key interest rate. under this framework, monetary policy becomes more powerful if the agents understand the reaction pattern of the central bank. when a disturbance hits the economy, the policy response required to stabilise the economy is smaller if the central bank can affect the whole term structure than if monetary policy only works through the short - term interest rate. 3 however, the importance of forward guidance depends on the degree to which expectations are forward - looking. in principle, economic agents may be able to calculate how the central bank will respond to changing conditions if they know both the model of the economy and the objectives and reaction pattern of the central bank. expected future interest rates may then align well with the central bank ’ s own interest rate intentions, and there will be no need for the central bank to communicate its policy intentions. in practice, a model description of the economy is just that – a model, which always will be a simplification. the central bank ’ s reaction pattern may also be adjusted over time. judgement is applied when responding to shocks, and a specific reaction function will only provide a simplified representation of the central bank reaction pattern. regular information about policy intentions is therefore necessary for the public to learn and revise their expectations. this is also the rationale for forward guidance. in theory, forward guidance may also work as a commitment device and help the central bank stabilise the economy in a more efficient way. 4 the merits of this are debated, and it may be most relevant in a situation where the interest rate has reached a lower bound. forward guidance about how the central bank plans to reach its targets may nevertheless help establish confidence among agents that the objectives will actually be achieved. forward guidance may