I will try to illuminate two questions: 1) Is our reaction pattern and the conditionality of our interest rate forecast understood? and 2) Do we affect the expectations of economic agents? [Chart: Decomposition of change in the interest rate path: Forecasts] Prior to the announcement of a new interest rate forecast, many of the market analysts publish their own forecast of our interest rate path. These forecasts are usually accompanied by a discussion of the factors pushing the expected revision of our path in either direction. Some analysts even publish their own assessment of our decomposition of the interest rate change, quantifying the estimated effects from different factors. The charts show the forecasts of the change in our interest rate path provided by three different macroanalysts prior to the publication of the October 2011 Monetary Policy Report. Our published change in the path and its decomposition are shown in the lower panel to the right. As shown in the chart, the forecasts are quite accurate, which is a typical pattern. We take this as an indication that market participants in general understand our reaction pattern. It also indicates that the agents correctly perceive our interest rate path as a conditional forecast, and not as an unconditional promise. [Chart: Changes in money market rates after monetary policy announcements] The next chart shows the changes in money market rates on the day of a new monetary policy announcement.
Øystein Olsen: A decade of forward guidance in Norway Speech by Mr Øystein Olsen, Governor of the Norges Bank (Central Bank of Norway), at a seminar, held at Columbia University, New York City, 8 April 2014. *  *  *  Accompanying charts can be found at the end of the speech or on the Norges Bank’s website. Please note that the text below may differ from the actual presentation. Thank you for inviting me to Columbia University. Economists in Norges Bank have been greatly inspired by researchers from this institution, and we have had the pleasure of hosting scholars from Columbia at a number of conferences in Norges Bank. Some of our economists have also been here as visiting scholars. It is therefore a particular pleasure for me to be here today. “Forward guidance” as an element of monetary policy has attracted attention in the aftermath of the international financial crisis. With key policy rates in some countries constrained at a lower bound, statements about central banks’ future actions have been used to affect interest rate expectations. Norges Bank has published explicit numerical interest rate forecasts as a regular part of our monetary policy communication for ten years. The interest rate forecast is our preferred way of guiding economic agents’ interest rate expectations. As such, our version of forward guidance has been reasonably successful. The topic of my talk is our framework for forward guidance and the experience gained over a decade of practising our approach.