jan f qvigstad : transparency and central bank communication speech by mr jan f qvigstad, deputy governor of norges bank ( central bank of norway ), at a seminar at the bank of italy, rome, 4 november 2008. the text below may differ slightly from the actual presentation. * * * it is now widely accepted that monetary policy works mainly through private agents ’ expectations. the widespread influence of the new keynesian model in academic research on monetary policy and the trend towards using dsge models in central banks have underpinned the focus on expectations. michael woodford puts it in a clear - cut way : 1 “ for not only do expectations about policy matter, [ … ] but very little else matters ”. the interest rate set by central banks is normally a very short - term interest rate, which in itself has negligible effects on economic decisions. it is mainly expectations about future policy rates that affect market interest rates and thus economic decisions. due to the increased attention on the expectations channel of monetary policy, central bank communication has been a key issue in the academic debate on monetary policy. i will in this presentation first go through norges bank ’ s communication approach and discuss our experiences with being open about our future policy intentions. then, i will discuss other aspects of transparency, including how transparency has been measured and how norges bank performs in terms of such measures. finally, i will briefly touch upon another important aspect of monetary policy, namely how to make good collective decisions, and the role of the staff in the monetary policy decision process. communicating future monetary policy intentions most central banks communicate future policy intentions in one way or another. the majority of central banks communicate indirectly through forecasts based on technical interest rate assumptions, and by giving verbal signals about future interest rate decisions in policy statements and speeches. with such indirect communication, the market participants gain information about the sign of future interest rate decisions, but may have less information about the size. until november 2005, norges bank used technical interest rate assumptions in the inflation forecasts, but also on some occasions commented on whether the bank intended to follow a different policy than what seemed to be reflected in market interest rates. thus, the bank gave signals about the sign of future policy intentions relative to market expectations, but not on the size. 2 from november 2005, norges bank started to use endogenous interest rate forecasts in the monetary policy report. norges bank was the second central bank with endogenous interest

on global growth and employment ”. will the ecb do as the bis suggests and give, to quote, “ a more measured monetary response ”? answer : the bis is merely reflecting the debate, particularly the academic debate. ex ante you are called on not to increase rates. ex post you are reproached for not having done that earlier. so, again, we will continue to do what is necessary. our responsibility is very clear : to ensure price stability and be credible in ensuring price stability. it is what the treaty itself and i would add that it is what our 313 million fellow citizens as well as investors and savers in europe and in the rest of the world are expecting from us. 23 ) so you are continuously as vigilant as a hawk seeking its prey? answer : i leave the responsibility for this metaphor to you. i would say the governing council is permanently alert. we have to be. in several speeches i have mentioned the concept of “ credible alertness ”. it is the mark of our institution to be constantly alert. we, as you might have noted, never pre - commit ourselves unconditionally to any particular course of action, whatever happens. we do what is necessary when it is necessary. 24 ) does the unwinding of the global imbalances such as the deficit on the us current account argue for a more measured monetary response? answer : the possible disorderly unwinding of global imbalances is calling for all partners concerned to do their homework. and that homework has been very well documented, particularly at the global level, at g7 meetings. 25 ) what can europe and the united states do? answer : europe should implement structural reforms to elevate the level of its growth potential. the continent has a lot to gain in doing that, growth, more prosperity and more job creation. the united states has to address its fiscal imbalances and deal with the issue of the low level of savings in the overall us economy, which is a major issue. and it is also true for japan and the rest of the world : we all have homework to do in order for the global imbalances to unwind in an orderly way. i think we have done a very good job in the past, and we will continue to do so. 26 ) has the risk of a disorderly global unwinding increased or decreased? answer : there has been and there is an important risk for a number of years.