##€™s basic forecasts of inflation excluding the transitory effects from interest expenditure and taxes. the riksbank made a forecasting error in failing to foresee the economic slowdown inherent in the asian crisis and the ensuing fall in commodity prices. unfortunately, you might say, we shared this error with a clear majority of observers. with the long time lag that applies to monetary policy, measures should really have been taken before the end of 1996 or early 1997, which was before the crisis had even arisen. if the commodity price fall does not leave any traces in inflation expectations, it should not affect policy either. cpi and underlying inflation in a longer perspective4 10. cpi and underlying inflation the estimated indicator of underlying inflation broadly corresponds to undinhx ( see inflation report 1999 : 1 ) determinants of inflation : underlying inflation 1. expected inflation trend 2. economic situation 3. supply shocks, e. g. changes in indirect taxes, oil prices or interest rates transitory factors opec 2 - 2 199 6 opec 1 1 99 7 1 99 8 tax reform - 2 sharp oil price fall, interest rate cuts marked interest rate cuts, oil price fall underlying inflation cpi for a more thorough discussion, see inflation report 1999 : 1, box on pp 35a€ “ 37, transitory factors and other supply shocks : a model approach. there have been periods in the last three decades when cpi inflation has deviated from the indexes of underlying inflation. this happened, for example, in connection with the oil crises in the 1970s, the fall in oil prices and interest rates in the mid - 1980s, the tax reform in the late 1980s and the downward shifts in interest rates in the 1990s. there is nothing new about this phenomenon, which can thus recur. it has to do with inflation being determined mainly by factors of three types : a€¢ long - term inflation expectations a€¢ the economic situation a€¢ transitory factors and supply shocks such as changes in indirect taxes and subsidies, interest expenditure and commodity prices for monetary policy it seems reasonable to assert that factors of the first two types are most relevant because it is mainly through them that monetary policy is capable of influencing inflation. factors such as indirect taxes have effects on consumer prices that are transitory ; they normally disappear after a time unless long - term inflation expectations have been affected. conclusion the cpi is the target variable for monetary policy. measured with the cpi, inflation is to be 2 per cent in a longer

making : art or science? ”, which mervyn king, governor of the bank of england, gave on 22 march 2010, and is available at : https : / / www. bankofengland. co. uk / publications / news / 2010 / 034. htm. that we both use this example may not be a coincidence. i received my copy of the wisdom of crowds from dr. john llewellyn. llewellyn and king were fellow students at cambridge. see alan s. blinder and john morgan ( 2005 ) : “ are two heads better than one : an experimental analysis of group versus individual decision making ”, journal of money, credit and banking, 37, no 5, pp. 789 – 811 and alan s. blinder og john morgan ( 2007 ) : “ leadership in groups : a monetary policy experiment ”, ceps working paper no. 151. alan s. blinder ( 2008 ) : “ on the design of monetary policy committees ”, norges bank working paper, 2008 / 6. competence, mutual sympathy and trust and a large degree of openness. the potential reward is better decisions by the group. 22 as in most central banks, interest rate decisions in norges bank are entrusted to a committee. committee deliberations are informed by advice given by the governor and deputy governor of norges bank. norges bank ’ s executive board has seven members. the number of committee members at other central banks varies between three and 22. 23 a committee of many members can draw on an ample supply of varied backgrounds and opinions, but a larger number will then also have to have a say in the final decision. while research has yet to determine the optimal committee size, anne sibert, one of the experts in this field, has said that the committee should be “ dinner size ”. 24 5. but groups are no guarantee for good decisions norges bank ’ s executive board can be described as a collegial committee. the committee seeks consensus through deliberations and its members stand behind the final decision. the deliberative process does not necessarily lead to a better decision. when the group members share the same world view and thinking, groupthink can lead the members astray. there is typically little dissent in discussions where participants think alike. the group can therefore be convinced that their common standpoint must be right. 25 nor is it unusual for independent thinking to be lost in a group setting. at an internal