bank uses five criteria, which can be summarized as follows : 1. achievement of the inflation target the interest rate should be set with a view to stabilising inflation close to the target in the medium term. the horizon will depend on disturbances to which the economy is exposed and the effects on the prospects for the path for inflation and the real economy. 2. reasonable balance between the inflation gap and the output gap norges bank conducts flexible inflation targeting, which implies that stabilising inflation around the target should be weighted against stability in the real economy. the chosen interest rate path should therefore imply a reasonable balance between the objectives if there is a conflict in the short term between stabilizing inflation around the target and stabilizing the real economy. what is meant by a “ reasonable ” balance is obviously a matter of judgment and is an important element in board discussions. for example, the swedish riksbank communicates the criteria behind the forecasts as follows : “ the riksbank ’ s forecasts are based on the assumption that the repo rate will develop in such a way that monetary policy can be regarded as well - balanced. in the normal case, a well - balanced monetary policy means that inflation is close to the inflation target two years ahead without there being excessive fluctuations in inflation and the real economy. ” ( see p. 2 in the riksbank ’ s monetary policy report ). in the assessment, potential effects of asset prices, such as property prices, equity prices and the krone exchange rate on the prospects for output, employment and inflation are also taken into account. assuming the criteria above have been satisfied, the following additional criteria are useful : 3. robustness interest rate developments should result in acceptable developments in inflation and output also under alternative, albeit not unrealistic, assumptions concerning the economic situation and the functioning of the economy. 4. gradualism and consistency interest rate adjustments should normally be gradual and consistent with the bank ’ s previous response pattern. 5. cross - checking it is important to cross - check the board ’ s judgments concerning the interest rate path against other information. one natural cross - check is market expectations about the future interest rate, as represented by implied forward interest rates ( adjusted for risk and term premia ). in addition, simple interest rate rules like the taylor rule and other variants suggested in the literature provide potentially useful cross - checks. experiences what are our experiences of our communication approach? the ultimate objective of our communication is to achieve better outcomes in

terms of improved stability in inflation and the real economy. however, with less than three years of being fully transparent about our future policy intentions, it is too early to draw a conclusion regarding macroeconomic stability. an intermediate objective of communication is to provide a better understanding of the bank ’ s reaction pattern. one test of this to consider the volatility of market interest rates on the day norges bank decides the interest rate. if the new communication approach has been successful, one should expect that the interest rate decisions are more predictable. chart 5 shows the magnitude of market rate changes on the day the interest rate is decided. we see that volatility in market interest rates has on average been smaller after we started publishing our interest rate forecasts. although one cannot exclude the possibility that the reduction in volatility is caused by other factors than policy communication, it seems that our reaction pattern has become somewhat better understood. one internal effect of publishing interest rate forecasts is that it provides discipline in the internal decision process and good incentives for the staff. i have observed how transparency has changed the motivation and discipline of the economists within norges bank. by publishing our own interest rate forecast, each sector expert will see how his or her judgment might affect policy. moreover, by following the principle that what is communicated externally should reflect the internal decision process, we need to think extra hard about what we do internally. transparency makes the public better capable of evaluating the central bank ’ s analyses and policy assessments. if these are not of sufficient quality, we will be criticised. public scrutiny disciplines the internal process and, i believe, results in better monetary policy. measuring transparency even if i have focused on certain dimensions of transparency, such as openness about our intentions for future interest rate decisions, transparency has many other dimensions. petra geraats 4 distinguishes between five dimensions of transparency : 1. political transparency refers to openness about policy objectives 2. economic transparency focuses on the economic information that is used for monetary policy 3. procedural transparency is about the way monetary policy decisions are taken 4. policy transparency refers to the announcement and explanation of policy decisions 5. operational transparency concerns the implementation of the central bank ’ s policy actions due to the many dimensions of transparency, it is not possible to talk about transparency as if it were a one - dimensional concept. one could claim that some central banks are more transparent than others in some particular dimensions, but it is difficult – if not impossible – to measure overall transparency by a single metric in