For example, the Riksbank in Sweden reports to the Swedish Parliament’s Finance Committee on the conduct of monetary policy at least twice a year. Canada has a similar arrangement. The Bank of England must write an open letter to the Minister of the Exchequer if inflation deviates from the target by more than one percentage point. In the letter, the bank must explain why the target has not been reached and what measures will be initiated. In Norway in the summer of 2003, the Ministry of Finance asked Norges Bank to provide a more detailed account of actual price developments in relation to the monetary policy target. At that time, inflation was more than one percentage point below the target. Many central banks are required to inform the Ministry of Finance concerning their use of monetary policy instruments. The formal frameworks vary. The central banks in Australia and Canada have regular consultations with the government authorities concerning monetary policy. In Sweden, the central bank informs the authorities in advance about important monetary policy decisions. This is also the practice in New Zealand. Norges Bank has provided information to the Ministry of Finance in special meetings ever since the Bank received instrument independence in 1986. The Ministry can then also express their view. This procedure does not reduce the Executive Board’s responsibility for their decisions. In some central banks, government representatives can participate in monetary policy committee meetings, as a rule without voting rights.
It is reasonable to expect that some of the differences will disappear over time. Result With more than ten years of experience with inflation targeting, we can now evaluate what the countries have achieved. Inflation had already fallen somewhat among the OECD countries that first introduced inflation targeting. Inflation has fallen further and has remained at the lower level. There is also considerably less variability in inflation. Inflation targeting in Chile and Israel reduced inflation from a very high level. There is also less variability in inflation. The countries that introduced inflation targeting from the end of the 1990s may be divided into countries with high inflation and countries with low inflation at the time of the shift in monetary policy. Inflation has remained low and stable in those countries that initially had low inflation. The countries  BIS Review 43/2005  5  where inflation was high have so far experienced the same favourable developments as Chile and Israel. Many of the countries that have inflation targeting today previously had a fixed exchange rate regime. With inflation targeting, the nominal exchange rate fluctuates. In those countries that introduced inflation targeting first, fluctuations in the exchange rate have diminished. Changes in the exchange rate are of importance to interest rate setting because the exchange rate affects inflation and output. When there are prospects of moderate economic activity, low wage growth and low inflation, the central bank will reduce the interest rate. This will normally result in a weaker currency.