##ity to the banking system. i have in this speech discussed the uncertainty in monetary policy. as monetary policy acts with a lag, it must be based, at least partly, on forecasts. however, our forecasting ability with regard to gdp growth and inflation is very limited one year ahead and largely non - existent two and three years ahead. this is what i have called the catch - 22 of monetary policy. bis central bankers ’ speeches we should therefore place greater emphasis on analysing the initial situation and making forecasts for the coming year. we should also concentrate on assessing the repo rate over the coming six months, as there is such great uncertainty over the repo rate in the longer run. the level of the repo rate should be checked against other monetary policy frameworks, such as the taylor rule. and we should be clear about the objective of monetary policy. we should regard the forecasts for longer than one year ahead as potential scenarios rather than unbiased forecasts. we should continue to report a main scenario for economic developments and the repo rate in the coming three years, in which inflation approaches 2 per cent and resource utilisation approaches a normal level, but we should regard it as such – a potential scenario. we should also continue to analyse the consequences of other sequences of events. the base for monetary policy has improved gradually since the current monetary policy regime, with a floating exchange rate and inflation target, was introduced. a large number of models have been developed and the forecasts are now based on the riksbank ’ s repo - rate path that can differ from the market ’ s forward rate curve. however, the base should be developed further. i have taken up some such areas in this speech : the forecasts for the gdp gap and other measures of resource utilisation should be developed further and the description of the uncertainty in these forecasts should be shown in the same way as the uncertainty in the gdp growth and inflation forecasts. the riksbank should also take into account credit expansion and asset prices in its monetary policy. the forecasts for credit growth and asset prices should be developed and formally integrated into the materials on which the monetary policy decisions are based. in this case, too, it is important to show the uncertainty in these forecasts. the riksbank ’ s models should be developed to be able to handle the difference between the riksbank ’ s repo - rate path and the market ’ s forward

is including the information that has become available after the decision was made. this is, in other words, an assessment after the fact, or what can be called an assessment ex post. although it may be very interesting to analyse the shocks that occurred after the monetary policy decisions were made, it is practically self - evident that monetary policy could have been better if the shocks that occurred later had been known at the time the decisions were made. an assessment after the fact is not therefore necessarily the most relevant form of assessment. a more relevant approach is to put ourselves in the position of the decision makers at the time the decision was made and to try to assess the decision given the information that was then available. in other words. perform an assessment based on the information available to the decision makers, or what can be called an assessment ex ante. the question that should then be answered is whether the analysis and the interest rate decision were reasonable given the information and the forecasts available at the time. did the riksbank, for example, arrive at a reasonable balance between stabilising inflation and stabilising resource utilisation? an assessment based on the information available to the decision maker also has the great advantage that it can be conducted in real time immediately after the publication of the monetary policy decision and the information and analysis on which the decision is based. one does not thus need to wait for a couple years to see what the outcomes for inflation and the real economy will be. the decisions of the riksbank can therefore be assessed and debated on an ongoing basis. an important part of the assessment of a flexible inflation targeting policy is to assess how credible the inflation target is, measured in terms of the extent to which various economic agents ’ inflation expectations correspond to the inflation target. if inflation expectations are stable close to the inflation target then the target is credible and it will therefore be easier for the riksbank to stabilise both inflation and resource utilisation. as i have already said, it takes time for monetary policy to have an impact on inflation and the real economy. monetary policy is therefore governed by forecasts. it is a question of choosing a repo - rate path so that the forecast for inflation and resource utilisation entails the best possible stabilisation of inflation and resource utilisation. as the forecasts play such a central role in the monetary policy decisions, it is of course important that the riksbank employs good forecasting methods and uses all the