fixed - interest - rate assumption to an unconditional forecast that includes a reaction function of the central bank. the initially established quarterly projection model was a small - scale model belonging to the second generation of such models. it was thus relatively simple and arguably missed many important links in the economy. nevertheless, it was already quite close to the state - of - theart among the inflation - targeting central banks around the world, and intense work has been in progress to build a higher - generation model. as a result from july 2008 the cnb ’ s forecast is based on latest generation general equilibrium model, which is fully based on micro specifications. of course, expert judgment and short - term analyses still play an important supplementary role in the design of the final forecast. it is worth mentioning that the development of our forecasting system has been part of the wider evolutionary process that the czech inflation targeting regime has gone through. the first years of the new regime were not easy, and included frequent numerical target misses. nevertheless, the czech republic enjoys low inflation, and inflation expectations seem to be firmly anchored at low levels at present. monetary policy decision - making is rule - based and transparent, thereby enhancing the credibility of the cnb. let me conclude with the statement that a “ forecast based ” monetary policy framework seems to fully allow an independent central bank to commit credibly to its long - term goal of price stability and this certainly means a lot.

david dodge : monetary policy report speech by mr david dodge, governor of the bank of canada, at a press conference following the release of the monetary policy report, ottawa, 20 october 2005. * * * this morning, we released our october monetary policy report. in the report, we said that the global and canadian economies have continued to grow at a solid pace, and our economy now appears to be operating at full production capacity. past and recent movements in energy prices and in the exchange rate for the canadian dollar, along with competitive pressures from china and other newly industrialized economies, are giving rise to significant ongoing adjustments in the canadian economy. given these adjustments and the slow growth of productivity in recent years, the bank has slightly reduced its estimate of potential output growth for 2005 and 2006. the bank projects that the economy will grow in line with production potential through 2007, with growth averaging 2. 8 per cent this year, 2. 9 per cent in 2006, and 3. 0 per cent in 2007. with the economy operating at capacity and with higher energy prices, pressures on consumer prices are somewhat stronger than they were at the time of the july monetary policy report update. assuming energy prices evolve in line with currently prevailing futures prices, cpi inflation is projected to average near 3 per cent through the middle of 2006, before returning to the 2 per cent target in the second half of next year. core inflation should remain below 2 per cent in coming months, returning to 2 per cent by mid - 2006. the bank raised its key policy interest rate to 3 per cent on 18 october. in line with our outlook, some further reduction of monetary stimulus will be required to maintain a balance between aggregate supply and demand over the next four to six quarters, and to keep inflation on target. short - term risks to this projection appear to be balanced. but as we look further out to 2007 and beyond, we see increasing risks that the unwinding of global economic imbalances could involve a period of weak world economic growth. the bank will continue to assess the adjustments and underlying trends in the canadian economy, as well as the balance of risks, as it conducts monetary policy to keep inflation on target over the medium term. 1 / 1