, 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. petra geraats argues that it is important not to delay policy decisions that are not expected by the market just in order to appear predictable. this, she argues, could impair the market ’ s understanding of the central bank ’ s reaction pattern and thus reduce predictability in the medium and long run. i fully share petra ’ s view. as a general rule, the central bank should do what it considers to be the appropriate thing to do in a given economic situation. predictability is not a goal in itself. however, one

to use endogenous interest rate forecasts in the monetary policy report. norges bank was the this process has also been acknowledged by the norwegian parliament : “ the majority think that it is a prerequisite for an effective monetary policy that the central bank is open about the interest rate forecasts, and are satisfied with the fact that norges bank emphasises this. ” ( innstilling fra finanskomiteen om kredittmeldinga 2007, innst. s. nr. 274, s. 11. woodford, m. ( 2005 ), “ central - bank communication and policy effectiveness, ” paper presented at frb kansas city symposium on “ the greenspan era : lessons for the future, ” jackson hole, wyoming, august 25 - 27, 2005. providing forecasts based on both a constant interest rate and market expectations give information not only about the sign but may also give some guidance about the range. see, for example, the following citation from the bank of england ’ s inflation report of february 2008 : “ under market interest rates, the central projection for inflation was a little above the target in the medium term, while under constant interest rates, it was below the target. ” this suggests that the likely interest rate path lies somewhere between a constant rate and market expectations. second central bank with endogenous interest rate assumptions, following the reserve bank of new zealand, who introduced it in 1997. more recently, the swedish riksbank, the czech national bank, and the central bank of iceland have also started to publish interest rate forecasts. publishing endogenous interest rate paths raises a number of issues, and there is disagreement among both academics and central bankers on whether being that precise about future policy intentions is beneficial or not. the key issue in the debate is whether such communication implies guidance or noise. some of the arguments for transparency relate to the beneficial effects when private agents understand the central bank ’ s reaction function, such that market interest rates will adjust more appropriately to economic news. publishing the interest rate forecast may not be sufficient to communicate the central bank ’ s reaction function, as one specific forecast does not in itself convey much information about how the central bank responds to various shocks. one could argue that three ingredients are required ; 1 ) the forecasts, 2 ) how the central bank responds to shocks, and 3 ) the criteria underlying the forecasts and reaction function. the first two ingredients provide efficiency in monetary policy, in the sense that private agents