by Governor Svein Gjedrem at Norges Bank's conference on monetary policy, 26 March 2004
It is a great pleasure to welcome you to Norges Bank's conference on monetary policy.
Three years ago, in March 2001, the Government issued a new mandate for monetary policy. According to the new guidelines, Norges Bank's conduct of monetary policy shall aim at maintaining low and stable inflation. The operational target is annual consumer price inflation of approximately 2.5 per cent over time.
The mandate and Norges Bank's conduct of monetary policy have spurred wide interest in monetary policy. A lively and well informed debate provides valuable input. The aim of this conference is to contribute to the debate on the conduct of monetary policy, and to exchange views.
We are also arranging this conference because Norges Bank wants to be open and transparent. According to the Regulation on Monetary Policy, the Bank shall inform the public of the assessments on which monetary policy decisions are based. A similar provision was incorporated into the Norges Bank Act last year.
But there are many other and no less important reasons to be transparent. Transparency increases the understanding of the conduct of our monetary policy and makes it more predictable. If our monetary policy is reasonably predictable, we can avoid an important source of risk and instability. If the markets understand the central bank's response pattern, market reactions to new information will have a stabilising effect.
There are also other reasons to be open. As Alan S. Blinder puts it: In a democratic society, the central bank's freedom to act implies an obligation to explain itself to the public.'1
Norges Bank provides its assessment of monetary policy decisions through a number of channels. The main channels are the press conferences held after the Executive Board's monetary policy meetings. But the inflation reports, speeches and articles are also important information channels, which are also used for communicating central aspects of Norges Bank's economic models, our view of the functioning of the economy and the mandate.
The Annual Report provides a detailed account of our monetary policy decisions. The Report also contains an evaluation of monetary policy. Later today, after lunch, I will present the assessment in the Annual Report for 2003.
For the afternoon session we have invited four economists who have participated in the monetary policy debate here in Norway. They will comment on Norges Bank's conduct of monetary policy. Two of them, Professor Ragnar Torvik and postdoc Hilde Bjørnland, are indeed promising academics. Knut Anton Mork and Steinar Juel are prominent economists in the financial sector. We will also open for plenary discussions. I am looking forward to the presentations and the discussion, which will certainly provide us with valuable input.
Central banks do not have a long tradition of being open - and maybe not of listening to others. But the trend is now towards transparency. This partly reflects the general tendency towards transparency in public governance, but recent experience also demonstrates that openness may improve the effectiveness of monetary policy.
Professor Lars Svensson, who will give the first lecture this morning, is a firm advocate of central bank transparency. Two years ago, he chaired the committee responsible for the Norges Bank Watch 2002 report. One of the committee's recommendations to improve Norges Bank's accountability was that a conference on monetary policy should be held in Norway every two years.
Both the conduct of monetary policy and the debate about it benefit from disciplined and systematic thinking. I am therefore very pleased that the conference starts with a lecture by a leading international academic in the field of monetary policy.
Central banking is by nature a business with little national competition. Focusing on our own economies, we may easily be led to believe that special rules apply in each country. This is the pitfall of excessive introversion. To develop our skills it is necessary to compare and learn from the experiences of other central banks. External input is also a precondition for an informed debate here in Norway.
This morning, Professor Issing will enlighten us about the experience of the ECB and the euro. It must have been a momentous task to introduce a single currency in eleven different countries. The transition went smoothly and we have all been impressed by the ECB's achievements. From day one, the ECB has based its monetary policy on euro area-wide considerations.
I am very pleased that both Professor Svensson of Princeton University, and Professor Issing of the ECB have the opportunity to attend the conference today.
I hope the conference will provide a constructive forum for the exchange of ideas and views. I invite you all to take an active part in the discussion. Once again, I would like to welcome you to our conference on monetary policy.
I now give the floor to Deputy Governor Bergo, who will chair the morning session.
1Blinder, A (1999), Central Banking in Theory and Practice, MIT Press. p. 69.