If confidence in economic policy deteriorates, for example because Norges Bank sets interest rates so low that inflation and unstable exchange rates are expected, long-term interest rates will rise. The cost of low confidence is thus high risk  5  http://www.statistics.gov.uk/pdfdir/cpi0501.pdf  BIS Review51/2001  5  premiums and unnecessarily high long-term interest rates. Transparency in our intentions, strategies and implementation of monetary policy may contribute to reducing uncertainty among economic agents. If monetary policy is predictable, an important source of risk is diminished. Thus, all else being equal, the interest rate that is necessary to achieve the inflation target will be lower. There will then be a better chance of achieving the inflation target without frequent and abrupt changes in the key rate. Predictability may contribute to ensuring more stable developments in demand and output. Thus, a predictable monetary policy may contribute to improving the efficiency and impact of monetary policy. Predictability and transparency are often equated. However, increased transparency does not necessarily imply a higher degree of predictability. Many cite the Bank of England as a very transparent central bank, because it presents its assessments of the economic outlook in its inflation 6 reports and publishes the minutes of the Monetary Policy Committee meetings.
In a separate press release, the committee explains how the formulations may be interpreted. The Federal Reserve does not publish a traditional inflation report like the Bank of England’s with projections of future developments. However, in connection with the Chairman’s semi-annual testimony to Congress, estimates are given of probable ranges for GDP growth, consumer price inflation and unemployment. The minutes of Committee meetings are published after six weeks, and disclose the way individual members have voted. A complete transcript of proceedings is released after five years. Members express individual views on monetary policy. Norges Bank analyses the inflation outlook in separate inflation reports which are published three times a year. Further assessments regarding the inflation outlook are presented every six weeks in connection with the monetary policy meetings at which the Executive Board sets interest rates. Central aspects of the modelling tools and our view of the functioning of the economy are examined in detail in the Inflation Report and in articles in the journal Penger og Kreditt and its English counterpart Economic Bulletin. The minutes of monetary policy meetings are not published. The Executive Board functions as a unified group in relation to the public. In Canada and New Zealand, responsibility lies with the central bank governor, and therefore only one view is expressed. In the ECB, Australia, Switzerland and Norway, the decision-making body speaks to the public with one voice. Like Norway, Australia includes external members in the body that makes decisions regarding the interest rate.