##pan ( 1996 ) said ten years ago, it “ cannot be acceptable in a democratic society that a group of unelected individuals are vested with important responsibilities, without being open to full public scrutiny and accountability. ” transparency is of little use if markets and the public do not believe what a central bank says. credibility is therefore a condition that is a sine qua non for a successful monetary policy. how can credibility be established? alan blinder ( 1998 ) summarises credibility as a " painstakingly built up history of matching deeds to words ". a long history of actually matching deeds to words, of honest communication and a reputation for delivering price stability will therefore ensure central bank credibility. in practice, only a small number of central banks can draw on a sustained history of successful monetary policy, amongst them, the federal reserve, the bundesbank and the swiss national bank. fortunately, in recent years, an increasing number of central banks are rapidly accruing credibility in that painstaking process referred to by alan blinder. 6 when we think about expectations, transparency and credibility in the context of monetary policy, it is important to remember that they cannot and should not be substitutes for action. it is often said that a see for example mckinsey ( 2005 ), where it is shown that the ratio of the global financial stock ( including equity, debt securities and deposits, but excluding real estate ) was roughly three times the size of world gdp in 2003, while it was about equal to world gdp in 1980. the growing importance of balance sheet considerations in monetary policy was noted by alan greenspan in his reflections on central banking at the jackson hole symposium 2005. " in particular, our analysis of economic developments almost surely will need to deal in greater detail with balance sheet considerations than was the case in the earlier decades of the postwar period. the determination of global economic activity in recent years has been influenced importantly by capital gains on various types of assets, and the liabilities that finance them. our forecasts and hence policy are becoming increasingly driven by asset price changes. " in the past 15 years, more than 20 central banks around the world changed their monetary policy framework in favour of inflation targeting strategies. by successfully bringing down inflation and by prioritising communication and transparency, most of these central banks have greatly increased their credibility. high level of transparency in conducting monetary policy means that the central bank has less work to do, because stating clear intentions will induce financial markets to do some of the work

late, suggesting that the recovery may be finally establishing a somewhat firmer footing. real gdp expanded at a 3 percent annual rate in the fourth quarter of 2011, the fastest growth since the first half of bis central bankers ’ speeches 2010. the average monthly gain in nonfarm payroll employment moved up to 256, 000 in january and february from 164, 000 in the fourth quarter. sales of light - weight motor vehicles rose to a seasonally adjusted annual rate of 15. 1 million in february, the highest since early 2008. the ism nonmanufacturing index rose for the third consecutive month in february and now stands at its highest level in a year. even the housing starts data have firmed somewhat, although from quite depressed levels. while these developments are certainly encouraging, it is far too soon to conclude that we are out of the woods. to begin with, the economic data looked brighter at this point in 2010 and again in 2011, only to fade as we got into the second and third quarters of those years. 1 moreover, the united states has experienced unusually mild weather over the past few months, with the number of heating degree days in january and february about 17 percent below the average of the preceding five years. while this reduces the amount that households and businesses must spend for heating, i suspect that it temporarily boosts economic activity overall. for example, the mild weather is certainly conducive to higher than normal levels of construction activity, and we did see a surge in hours worked in that sector over the past few months. more importantly, real economic activity has yet to be strong enough on a sustained basis to make a big dent in the overall amount of slack in the u. s. economy. while it is true that growth was stronger in the fourth quarter, most of that growth was due to inventory accumulation. growth of final sales was actually quite weak. historically, a quarter in which inventory investment makes a significant growth contribution is typically followed by a quarter in which that growth contribution is modest or even negative. that appears to be what is shaping up for the first quarter of this year. based on available data, current expectations are that real gdp will expand at around a 2 percent annual rate during the first quarter of 2012. despite the increase of light vehicle sales, overall consumer spending has been sluggish. while growth of retail sales in february was reasonably strong in nominal terms, it was considerably less impressive when the large increase of gasoline prices that occurred that month is taken into