Given a marked increase in credit rationing in capital markets and bank lending, the conventionally measured short-term riskfree real rate may not be the same summary statistic of monetary conditions as before the turmoil. It is currently necessary to undertake a richer analysis of monetary and credit conditions, which had been the broad theme of my earlier paper. But those remarks about money and credit were nested within a broadly common approach to the transmission mechanism and policy. To recap, the MPC’s more collective statements make us free to do our duty in revealing our individual thoughts without creating a misleading perception of cacophony when it is not really there. The challenge for central banks with different decision-taking structures would seem to be the opposite: (i) how to allow a range of views to be explored seriously so as to avoid intellectual or analytical inertia – or how to let in fresh air; and (ii) in terms of communications, how to demonstrate that there is true debate without individual pronouncements being confused with the collective pronouncements on policy made typically by the Chair. I think forecasts are central to this. And I would encourage Alan Blinder and his collaborators to extend their work on the production and role of forecasts in the decision-making of different central banks; and how the communication of forecasts interacts with the communication of other elements of the policy process.
4  BIS Review 145/2010  As I mentioned earlier, the Fund has become larger than we expected a decade or so ago as high oil prices have more than compensated for fairly low returns in international capital markets. Looking ahead, market prices suggest that interest rates are expected to remain low for many years. Real interest rates on long-term bonds have been depressed by central bank government bond purchases. Let us nonetheless assume an average nominal return on the Fund’s fixed income instruments of 3 per cent ahead. On the other hand, there are no signs that return requirements in equity markets are low. Dividend payments are high in relation to companies’ market value. Simple valuation models 9 indicate that shareholders require a rate of return between 8 and 10 per cent, a fairly normal level. This results in an overall nominal return of between 6 and 7 per cent. In addition, positive contributions to the return are expected from non-government bonds, active management and real estate. There is considerable uncertainty surrounding these estimates. Nevertheless, Norges Bank’s view is that it is still reasonable for the government to base its withdrawals from the Fund on an expected annual real rate of return of 4 per cent. The increase in the equity allocation from 40 per cent to 60 per cent does not provide a basis for higher withdrawals from the Fund, but reflects prospects for somewhat weaker returns in international markets today than was the case ten years ago.