20  Woodford M. “For not only do expectations about policy matter, but (…) very little else matters.” – Interest and Prices: Foundations of a Theory of Monetary Policy, Princeton University Press, 2003. BIS Review 42/2006  3  been followed recently by the Norgesbank 21 . At first (since 2003) the Norwegian MPC published its monetary policy intentions only for the next four months in the form of an interest rate forecast interval. Last November it went further and started publishing a forecast for interest rates three years ahead in the form of a central forecast (with two alternative scenarios) along with a fanchart). These bold steps made New Zealanders and Norwegians push the frontier of central banking ahead and set a new benchmark for inflation targeters 22 . Are we ready to follow? In 2000 Mahadeva and Sterne measured central banks transparency 23 . Back then the Polish central bank was below the average among inflation targeters. However since then the NBP has made considerable progress. Major changes to communication have been introduced such as publication of inflation forecasts, modification of inflation reports and decision statements in order to make them more forward-looking. Łyziak et al. have applied the Mahadeva-Sterne and Eijffinger–Geraats indices to assess current transparency of the NBP and showed that it has markedly improved 24 . Nevertheless, we are not resting complacently. There are still ways to go and things to learn.
But that is rarely possible in practice, other than perhaps a very short distance ahead. 8  See Woodford (2012). 9  See Carney (2012). 4  BIS central bankers’ speeches  The difficulty of utilising this particular policy channel is probably not a great issue in normal times. But it looms larger when policy is constrained by the zero lower bound on interest rates. In such circumstances – and assuming that alternative policies, such as quantitative easing, are unavailable or ineffective – an ability to exploit this policy-expectations channel becomes much more valuable, as the commitment to hold policy loose in the future feeds back onto aggregate demand today by reducing expected future real interest rates. This comes about both through a low future nominal interest rate and a higher future rate of inflation because policy is held “loose for long”. The intent of such a loose-for-long strategy is in some ways similar to quantitative easing, as both reduce interest rates further down the yield curve. But the former does so by changing the path of risk-free rates at the near end of the yield curve, while the latter operates mainly through variations in the term premium further out along the yield curve brought about by changes in relative asset supplies. Moreover, the loose-for-long approach partly works by raising future inflation, which is not an objective of quantitative easing.