0 percentage points and there are prospects of further interest rate hikes. the shortest money market rates are determined by the central bank via the key policy rate. but private - sector consumption and investment decisions depend more on expectations regarding future developments in the key rate. to be successful, monetary policy must be able to influence these expectations. the public must therefore understand the central bank ’ s intentions in interest - rate setting. transparency regarding norges bank ’ s monetary policy assessments improves the predictability and effectiveness of monetary policy. in recent years, we have endeavoured to facilitate the public understanding of our actions. the background material for the executive board ’ s monetary policy meetings is published and the assessments underlying interest rate decisions are explained. when i addressed this assembly in sanderstølen last year, norges bank had just started publishing its own interest rate forecast. from using technical assumptions or others ’ assessments, we have now taken ownership of the interest rate path in our projections. in the inflation report, norges bank publishes the interest rate path that in the bank ’ s view provides a reasonable trade - off between stabilising inflation at target and stabilising developments in output and employment. so far, the experience of publishing our own interest rate forecasts has been positive. it seems that most economic agents have understood the content of the forecasts. at the same time, i want to stress the uncertainty surrounding the interest rate path, which is why we present fan charts with uncertainty intervals around the forecasts. in addition, the inflation report contains several different sensitivity analyses to illustrate alternative interest rate paths that may come about should economic developments deviate from the baseline scenario. at the same time, we present " interest rate accounts " where we explain any changes in the interest rate path since the previous report. the specific interest rate path cannot and must not be looked upon as a guarantee and a path to which we unconditionally have committed ourselves. should economic developments deviate from the projected path, the interest rate path will also shift. instead, it can be said that through our communication we commit ourselves to a pattern of behaviour, a response pattern. if interest rate expectations can be influenced, it will in many cases be useful for a central bank to commit itself to a predictable response pattern. this kind of commitment can, if it is perceived as credible, have a positive effect on the economy ’ s functioning and enhance the effectiveness of monetary policy. i will revert to this theme shortly. a relevant question is the

extent to which our communication actually influences interest rate expectations. forward interest rates derived from yields at various maturities will in the absence of term premia and other risk premia normally reflect the market ’ s short - term interest rate expectations. 1 when inflation report 3 / 06 was published in the beginning of november last year, the forward interest rate was on a par with our forecast for the next six months, but considerably lower thereafter. it is now almost three months since the previous inflation report was published. since that time forward rates have increased and approached norges bank ’ s interest rate path. forward rates somewhat further out are still lower than our forecast. the reason may be that market participants have a different perception of the interest rate path that is necessary to stabilise inflation at target and to achieve stable developments in output and employment. alternatively, the market may have the same short - term interest rate expectations as norges bank, but because of extraordinary conditions long - term bond prices are being pushed up and, consequently, long - term bond yields are being pushed down. forward interest rates - often referred to as implied interest rates - are calculated so that a short - term bond, when rolled over and reinvested at the implied interest rates, generates the same yield as a long - term bond. for example, if we observe today ’ s one - and two - year interest rates ( ‘ short - term ’ and ‘ long - term ’ interest rate respectively ), the implied forward interest rate one year ahead will be expressed by the equation, where is the two - year interest rate, is the one - year interest rate and is the implied one - year rate one year ahead. the expectations hypothesis holds that the implied interest rate is equal to the market ’ s interest rate expectations and the expected return from rolling over short - term bonds is equal to the return on a long - term bond. however, if term premia exist, the expected return from rolling over shortterm bonds is different from the return on a long - term bond. if the term premium is positive, forward interest rates will overestimate expected future short - term interest rates, while they will be underestimated if the term premia are negative. long - term bond yields have been at historically low levels in recent years. from lying in a broad range around 10 per cent at the end of the 1980s, they have fallen to around 4 per cent in the past few years. developments in nominal interest rates must be seen in