January 18, 2007
A lesson for the ECB
Ralph Atkins in Frankfurt
Nordics are setting the pace in central bank transparency. That is clear from the announcement this week by Sweden’s Riksbank
that it will follow Norway’s example in publishing forecasts of its own interest rates.
Don’t yawn: this is state-of-the-art stuff in academic economics circles. Monetary policy these days is largely about influencing the economy through expectations.
Moreover, Sweden’s move will raise the question of why the European Central Bank and Bank of England are not as open. The ECB pledges to be predictable – but only one month out. The Bank of England still likes to spring big surprises, as it did with last week’s interest rate increase.
Of course, the ECB and Bank of England don’t quite see it that way. They have good arguments about how publishing interest rate forecasts risks a central bank’s credibility. That is important in combatting inflation. But in practice the way the two banks are organised mean that their interest rate-setting committees would be unable to agree privately on where interest rates might in more than a few months time, let alone agree on publishing a three-year forecast.
