’ s recommendation on a countercyclical capital buffer for banks. in addition to new zealand and norway, the central banks in sweden, the czech republic and israel currently publish interest rate forecasts. in addition, the federal reserve publishes the individual interest rate forecasts of the members of the federal open market committee ( fomc ). norway ’ s sovereign wealth fund ( the “ government pension fund global ” ) is managed by norges bank investment management ( nbim ) and is invested in international capital markets. for details on our institutional framework, see qvigstad, j. with i. fridriksson and n. langbraaten ( 2013 ) : “ monetary policy committees and communication, ” norges bank staff memo 2 / 2013. bis central bankers ’ speeches [ chart : timeline : the first years of norges bank forward guidance ] in 2004, we started to publish our first quantitative guidance in the form of a “ strategy interval ” for the key policy rate four months ahead. in november the following year, we published for the first time our own interest rate forecast for the next three years. prior to that, we had established and published criteria for an appropriate interest rate path. 8 up until november 2005, the analyses and forecasts in our reports had been based on either a constant interest rate path or an interest rate path as implied by the forward market. at this point however, our conclusion was that it would be easier to interpret, evaluate and communicate our view of the economy when it was based on a path for the interest rate that we considered to be appropriate. in addition, it made our communication better aligned with our analytical framework and with theory. [ chart : our interest rate forecast is conditional ] our forecast for the key policy rate 9 is presented in a panel together with forecasts for inflation and the output gap. the chart shows the forecasts in the most recent monetary policy report, published just two weeks ago. there is substantial uncertainty associated with the projections, as illustrated by empirically based fan charts. the fan chart for the policy rate also illustrates the conditionality of the forecast : although we control the key interest rate, the forecast for the interest rate is conditional on the outcomes for other variables, which are uncertain. [ chart : the system for monetary policy analysis and forecasting ] when we decided to publish our own interest rate forecast, more transparency and documentation were required regarding our models. our core policy model, nemo ( norwegian economy model ),

shock and therefore with transitory effects on inflation, tightening the policy was less than optimal. most recently, the exchange rate broke the upward trend it followed for several quarters. actually, it has dropped compared with its levels early in the year. symmetric to our previous actions, if for this reason inflation were to fall temporarily below our target, we would not apply a more expansionary monetary policy, unless after some time we saw second - round effects jeopardizing the return of inflation to 3 % over a two - year horizon. importantly, any changes in the policy stance in either direction can be warranted only if our medium - term inflation forecast suggests that it will deviate away from the 3 % target. of course this would be determined by changes in its fundamentals. what are the risks we identified in our baseline scenario? on the external front, one of the main risks is a reversal of the improved international financial conditions. as i said, the path that the fed will ultimately take to adjust the policy rate is critical. an increase in the fed funds rate is very likely within this year, and the markets ’ expectations point at very gradual subsequent adjustments. a more aggressive action by the fed could increase global volatility significantly, affecting asset prices, capital flows and currencies. the brexit vote materialized one of the risks outlined in june but, to this date, its effects seem 4 / 14 bis central bankers'speeches bounded. however, its true consequences are still in the making, so further repercussions on medium - term growth in the uk and europe cannot be ruled out. add to this the concerns about the soundness of part of european banks, particularly in italy and portugal. and let ’ s not forget several open electoral processes around the world, whose results could cause a shift towards more protectionist policies. in the emerging world, the overall risk outlook has tended to moderate in the past few months. accordingly, concerns about china have eased, while the chinese impulse policies have stabilized the pace of growth. significant risks remain, however, namely the doubts surrounding the sustainability of these measures over time, as well as about the chinese financial system and real estate sector, among other factors. moreover, a scenario in which the fed ’ s monetary policy becomes more aggressive may have important negative implications on china. in latin america, beyond very recent improvements, adjustments to both public and private spending are still needed. domestically, short - term inflationary risks remain tied to the evolution of