jan f qvigstad : trends in monetary policy transparency – comments on petra m geraats'paper speech by mr jan f qvigstad, deputy governor of norges bank ( central bank of norway ), at the conference " international experience with the conduct of monetary policy under inflation targeting ", hosted by bank of canada, ottawa, 24 july 2008. the charts in pdf - format can be found on the norges bank ’ s website. * * * the paper by petra geraats provides an up - to - date and thorough analysis of the trends in transparency during the last ten years. her analysis confirms the general trend of improved transparency, but she also provides an interesting analysis of the differences across alternative monetary policy regimes. i am sure petra ’ s paper will be a key reference in future research and policy discussions on transparency. 1 as discussed in the paper, transparency can be motivated both by accountability requirements for independent central banks, and by the purpose of enhancing the effectiveness of monetary policy. both have been important factors behind the process in norges bank towards increased transparency. it is now widely accepted that monetary policy works mainly through private agents ’ expectations. the widespread influence of the new keynesian model in academic research on monetary policy and the trend towards using dsge models in central banks have underpinned the focus on expectations. michael woodford puts it in a clear - cut way : 2 “ for not only do expectations about policy matter, [ … ] very little else matters ”. the interest rate set by central banks is normally a very short - term interest rate, which in itself has negligible effects on economic decisions. it is mainly expectations about future policy rates that affect market interest rates and thus economic decisions. most central banks communicate future policy intentions in one way or another. the majority of central banks communicate indirectly through forecasts based on technical interest rate assumptions, and by giving verbal signals about future interest rate decisions in policy statements and speeches. with such indirect communication, the market participants gain information about the sign of future interest rate decisions, but may have less information about the size. until november 2005, norges bank used technical interest rate assumptions in the inflation forecasts, but also on some occasions commented on whether the bank intended to follow a different policy than what seemed to be reflected in market interest rates. thus, the bank gave signals about the sign of future policy intentions relative to market expectations, but not on the size. 3 from november 2005, norges bank started

’ inflation targets. in the long run, this will be offset by a corresponding depreciation of the krone. the international rise in prices for manufactured goods is lower than for services – around 1 per cent. the inflation target of 2½ per cent implies a depreciation of the norwegian krone of around ½ per cent in the long term, because the target has been set somewhat higher than our trading partners ’ inflation target. this means that goods prices measured in norwegian krone must be expected to rise by about 1½ per cent in the long term. with wage growth of 4 - 4½ per cent, productivity growth in manufacturing must be about 2½ - 3 per cent to maintain profitability. for services, price inflation can be somewhat higher, about 3 – 3½ per cent, and productivity gains correspondingly lower. the size of the exposed sector will be affected by the portion of petroleum revenues that is absorbed into the norwegian economy. in the long run, monetary policy cannot influence overall employment or its distribution across industries. historically, employment in the internationally exposed sector has declined in waves. the sharpest declines in manufacturing employment were observed in the years between 1977 and 1984 and from 1987 to 1992. both periods were preceded by a considerable deterioration in cost competitiveness in manufacturing. there is a risk of a new period of decline in manufacturing. the restructuring in manufacturing may take place rapidly. competitiveness has deteriorated by about 10 per cent since 1996. we do not know how long this development will continue. the long - term requirements for improving the balance between wage growth and productivity growth may become apparent at an early stage. developments for norwegian enterprises do not, however, have to be negative. some enterprises could be at the forefront of technological developments and increase efficiency more rapidly than the relatively high rate of growth in real wages in norway. many enterprises move large portions of their production abroad. norwegian manufacturing companies could still be profitable even if the significance of the manufacturing sector in the norwegian economy is reduced. however, scaling back manufacturing involves a risk. it makes the economy more vulnerable. the growth potential of the economy – the basis for learning, innovation and development – may be impaired when less of the business sector is exposed to intense foreign competition. akram, q. f. ( 2000 ) : ppp despite real shocks : an empirical analysis of the norwegian real exchange rate. working paper 2000 / 7, norges bank, oslo.