The inflation target may be formulated as an interval, for example 1-3 per cent, as in New Zealand or, as in Norway, as inflation of close to 2.5 per cent over time. Partly owing to various disturbances to the economy, inflation cannot be expected to remain at target constantly. Central banks have somewhat varying formulations as to how rapidly inflation should be brought back to the target. Some central banks state that inflation should be brought back to target within a “reasonable time horizon” or “over the medium term”. Others have quantified that the inflation target should normally be attained within two years, as in Sweden, or as in Norway, where the interest rate is set with a view to stabilising inflation at the target within a reasonable time horizon, normally 1 – 3 years. In practice, the monetary policy conducted by most central banks is nonetheless similar. They orient monetary policy towards maintaining low and stable inflation. All central banks will reduce their policy rate when there are prospects of low inflation in the medium to long run and raise it when there are prospects of high inflation. What distinguishes Norges Bank from other central banks? Monetary policy in Norway is in line with the monetary policy conducted by a number of central banks in the OECD area. One difference, however, is that Norges Bank is conducting monetary policy in an oil economy.
But the Federal Reserve states itself that in the long term stable prices are a condition for sustained output and employment growth. The introduction of formal inflation targeting has been under discussion in the US for several years. The debate was rekindled with the appointment of Ben S. Bernanke as Chairman of the Federal Reserve on 1 February this year. He has argued that quantifying the concept of long-term price stability may reduce the uncertainty associated with monetary policy and more effectively anchor longterm inflation expectations. In his view, however, the introduction of a long-term inflation target is fully  2  BIS Review 80/2006  consistent with current US monetary policy 1 . There has been little interest in US political circles in changing the monetary policy framework 2 . Pursuant to the Regulation of March 2001, the mandate for monetary policy stipulates that monetary policy shall be aimed at stability in the Norwegian krone’s national and international value, and at the same time underpin fiscal policy by contributing to stable developments in output and employment. The operational objective of monetary policy is low and stable inflation, with annual consumer price inflation of approximately 2.5% over time. The mandate implies that inflation targeting shall be flexible, so that weight is given to both variability in inflation and variability in output and employment. The concrete target for inflation varies somewhat among central banks.