The plus and minus signs show the extent to which Norges Bank has signalled upside or downside risks. As a reference for the extent of the effect, the lines around the time axis show the average daily absolute change in the three-month money market rate. As from the monetary policy meeting on 21 July 1999, the date of the meetings have been made public in advance. We see that changes in the money market rate are modest in connection with most monetary policy meetings. The money market rate changed by more than 0.20 percentage point in connection with only four of the nearly 30 meetings included in the chart. We have also made similar estimates for a number of other countries in order to have a basis for comparison. The next charts show changes in connection with monetary policy meetings in the European Central Bank, the Bank of England and Sweden’s Riksbank. BIS Review 7/2002  7  The effect is not systematically different from the effects in other countries. If interest rate decisions are largely anticipated, adjustment costs will decline. This is an advantage. What we must be measured against primarily is whether we are setting the interest rate correctly in relation to the inflation target. Guidelines for fiscal policy The fiscal policy stance is a key factor for developments in domestic demand. Towards the end of the 1990s politicians were facing new challenges in the formulation of economic policy.
We have systematised our judgement so that it is possible for others to determine whether the bank’s assessments seem reasonable. The assessment of risk is linked to six factors that are important for 4 price inflation. Our assessment of risk associated with each of these factors is formulated as a probability distribution around the projection for the variable in question. The assessment of risk associated with the actual inflation projection emerges as a weighted average of these six distributions. The weighting of each factor reflects its significance to developments in price inflation as this emerges in our model. Weighting is heaviest and approximately the same for domestic private demand, wage growth, growth in public expenditure and developments in the global economy. The weighting for exchange rate and oil price is somewhat lower. The chart shows our assessment of the balance of risks associated with estimated wage growth as it was presented in the Inflation Report 3/2001. We estimated 5 per cent wage growth in 2003. At the same time, we said that the probability that wage growth would be higher than projected was greater than the probability that it would be lower. We could present similar charts for the other five factors. The ”fan” for the inflation projection is a topographical map of the overall assessment of the balance of risk. 4  The risk model is discussed further in “Box: Assessment of risk to the inflation projection”, Inflation Report 2/2001, Norges Bank.