of interest rate changes on inflation emerges in 2 - 3 years, while the bulk of the effect emerges within about a year. the short - term impact on real variables tapers off within the same time frame. and it follows from this that in order to pursue forward - looking monetary policy with any degree of success, it is necessary to make forecasts. these call for economic analysis and modelling. in order to understand the problems associated with monetary policy implementation, one must bear in mind that statistics relating to the recent past often contain significant measurement errors, that we do not know what the “ right ” economic model is, and that the future is always in some sense unknowable. in other words, monetary policy is always implemented under conditions of uncertainty – to varying degrees, of course. this is why we consider a large number of economic indicators and use several models. furthermore, we do not put a single economist in front of a computer and assign that person the task of determining the monetary stance ; instead, we have a committee that exchanges opinions and assesses the current situation and outlook at the time in question. the observations i have just made are general in nature and apply to large and small countries alike. but we know that monetary policy in small, open economies is accompanied by particular challenges – challenges that we must take into consideration when developing a monetary policy framework for iceland. in this context, it should be noted, first of all, that smaller economies generally have a tendency to be more volatile than larger ones, owing both to less economic diversity and the greater relative weight of individual shocks. second, the relative weight of the tradable sector is often greater than in larger economies. because of this, economic developments are more dependent on the exchange rate, and pass - through from the exchange rate to inflation is generally stronger. third, financial markets are shallower than in larger economies, other things being equal, and this contributes to greater volatility of financial prices. fourth, in an environment of unrestricted capital flows and increasing international financial integration, the possibility for small economies to affect their own financial conditions through monetary policy diminishes. the question then arises : should there be an exchange rate target or an inflation target? the answer is not always straightforward. other things being equal, an inflation target is more appropriate because it stands closer to the factors important to economic well - being, and it is easier to decide what an inflation target should be than to estimate the “ right ” exchange rate target

manage their money well. this is again something we find all over the world. in most countries, they find that many people do not plan ahead, and they take life one step at a time, taking things as they come. but eventually, they may end up with problems if they have not saved enough or not anticipated some future expenses for their children or themselves. so we can do more to help singaporeans to plan ahead, by expanding financial education for all age and income groups, all over singapore. this is not something we will do for one or two years. we will have to continue this work as our children become young adults and eventually retire, giving rise to a whole new cycle. hence the work on financial education has to be done continuously, as it is a very important area to help singaporeans. financial literacy survey of over 1, 800 singaporeans and prs conducted by the nielsen company on behalf of mas between august and october 2013. respondents answered questions and participated in focus groups on their knowledge of, attitudes and behaviour towards financial products and management. bis central bankers ’ speeches towards better financial wellbeing financial protection 7. what will mas do? we have a two - pronged approach to help singaporeans to enhance their financial well - being. the first is to regulate the conduct of our banks and financial institutions. for banking, the key issue is to discourage the imprudent use of unsecured credit facilities. consumer research has shown the immediate pleasure of purchasing a designer accessory or purchasing the latest gadget using a credit card. if you have a credit card, the immediate pleasure of using it to purchase the latest good that you ’ re interested in can lead people to spending more than they otherwise would. there was an experiment with a group of students in the us who were asked to bid for a pair of tickets to a basketball match. the experiment showed that those who bid for the tickets using their credit cards were willing to pay up to 100 % more than those who were using cash. 2 and this was a group of students that was not a typical population, but a group of mba students from mit! even they, with their credit cards, bid much more when using credit cards than when using cash. this is normal human behaviour. 8. hence mas ’ credit card rules are important. we have to discourage people from excessive spending using credit cards. many countries do not impose rules, or some have imposed rules only recently. we moved very early to discourage excessive credit card