svein gjedrem : ten years of inflation targeting strategy in poland compared with the experience of other countries presentation by mr svein gjedrem, governor of norges bank ( central bank of norway ), at the conference " 20 years after the collapse of the socialist economy. transformation, economic growth and convergence in poland and other central and eastern european countries ", national bank of poland, warsaw, 5 june 2009. * * * thank you for the invitation to speak at your conference. it is a pleasure for me to be here in warsaw on this occasion. norges bank was given an inflation targeting mandate in 2001. inflation expectations have been well anchored around the 2. 5 per cent target rate in recent years. we practice flexible inflation targeting. the credibility of our inflation target has enabled monetary policy to support a stable economic growth path. however, like other countries, norway was hit by the international economic downturn that followed the financial crisis. the estimated growth rate for 2009 is minus one percent. preceding the downturn, we went through a long period of low cpi inflation. headline cpi in norway is strongly affected by fluctuating energy prices. an inflation measure that instead includes trend energy prices, cpixe, illustrates how the inflation rate gradually has been approaching our target of 2. 5 per cent. in this – until the fall of 2008 – rather benign macroeconomic environment, rising property prices, high credit growth and a low saving ratio posed a policy challenge – as in many countries. a high leverage ratio makes the financial system, and in effect the whole economy, more sensitive to fluctuating asset prices. the present downturn in norway was not triggered by moving asset prices, but rather by the international downturn. still, the effect of the international downturn on our economy is probably stronger than it would have been with a better regulatory framework. a consensus is emerging internationally that new tools are needed in order to make the financial system more robust with respect to macroeconomic fluctuations. moreover, the financial system should help dampen rather than amplify or even cause fluctuations. the new tools – macro - prudential policies – are needed regardless of the monetary policy regime in place in any given country. for norway, as a small eu outsider, it is hard to see any better option than inflation targeting. indeed, it has been a strength in the current downturn to have a credible inflation targeting regime in place. we have tried to have a long - term perspective on attaining

, 268 – 99. see the discussion in carl andreas claussen and øistein røisland ( 2010 ) : “ the discursive dilemma in monetary policy ”, norges bank working paper 2010 / 5. it should be noted that premise - based decisions can be vulnerable to strategic behaviour. it is possible to vote on the premises in such a way as to reach a preferred outcome. the material on which interest rate decisions is based is published on the norges bank website. for a more detailed discussion, see “ on transparency ” in norges bank occasional paper no. 41 ( 2010 ). reports from norges bank watch are available at : http : / / www. bi. no / en / research / research - centres / centrefor - monetary - economics - cme / norges - bank - watch / see inter alia david longworth and asbjørn rødseth ( 2003 ) : “ report on the decision - making process and the strategy document ”, hans genberg, charles wyplosz and andrea fracasso ( 2003 ) : “ how do central banks write? an evaluation of inflation targeting central banks ” and ingimundur fridriksson ( forthcoming ) : “ the monetary policy report process in norges bank ”. 7. was the decision good? even if our delegating authority and critics have access to the background for our decisions and the way we arrive at them, one big question still remains : what should the criteria be for judging whether our decisions are good? the objective of monetary policy is a natural place to begin our assessment. have we or have we not achieved price stability? even if we make our best efforts, there is no guarantee that we will succeed in reaching this objective. the key policy rate is not the only factor affecting the economy and that can disturb the outcome. even so, we can give weight to accurate information, assess the most relevant alternatives and listen to input. making a decision on this basis might excuse us from blame if the outcome should in retrospect turn out to be unfavourable. 35 let us return to the decision in 1949 to follow the pound sterling. as i said, in retrospect the consequences of this decision appear to be less favourable. nor, perhaps, was the decisionmaking process sufficiently thorough. doubts have been raised as to whether alternative courses of action were adequately assessed. 36 but the authorities apparently felt that they had no choice other than a comparable