Such a scenario will allow central banks to progressively scale back their crisis measures and, eventually, lift policy rates off the zero lower bound. We are clearly not there yet, however. The global economy is still fragile and the level of uncertainty remains elevated. Markets understandably expect policy rates to remain low for several quarters in the future. While at a qualitative level the outlook is thus relatively clear, the road back to normality will probably be long and possibly bumpy. After all there is no precedent for the situation we have experienced and for the exceptional measures taken by monetary authorities. At the same time, as we have discussed, an extended period of low interest rates may entail significant risks for financial stability. These require the full attention of the authorities, who should be ready to use appropriate instruments, if needed, to keep these risks in check. 6  BIS central bankers’ speeches  References Adrian, T., Shin, H. (2009). Financial Intermediaries and Monetary Economics. Federal Reserve Bank of New York Staff Reports, No. 398. Bernanke, B. (2004). The Great Moderation. http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm Bernanke, B. (2007). Global imbalances – recent developments and prospects. http://www.federalreserve.gov/newsevents/speech/bernanke20070911a.htm Bloom, D., Canning, D., Sevilla, J. (2001). Economic Growth and the Demographic Transition. NBER Working Paper No 8685. Borio, C. (2012). The financial cycle and macroeconomics: What have we learnt? BIS Working Paper No 395. Borio, C., Zhu, H. (2012). Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism? Journal of Financial Stability, vol. 8, pages 236–251.

Since a large share of the revenues from petroleum activities accrues to the state, any fluctuations in oil prices will primarily result in changes in allocations to the Fund. Since all of the Fund’s capital is invested abroad, such changes will in principle not influence economic activity. This makes the Norwegian economy more robust to oil price fluctuations, thereby reducing oil dependence in the short term. To illustrate the importance of the buffer function, let us assume that the oil price shows a temporary rise of NOK 10 per barrel, or a little less than USD 1.50 per barrel, lasting for about a year. This is a small change in the oil price, well within normal variations from one year to the next. Government revenues - and hence the budget surplus - would then increase by around NOK 10 billion in the first year and NOK 12–13 billion the next year. This corresponds to around 1% of Norway’s annual GDP. By comparison, annual trend growth in the mainland economy is slightly over 2%. Note that a price increase on the margin will be reflected mainly in an increase in government revenues and will have limited effect on private sector incomes. This means that the effect of the price increase on the Norwegian economy depends on how the government spends the additional revenues. If they are absorbed into the economy through higher expenditure or reduced taxes, when the economy is already nearing capacity, such a policy would rapidly lead to substantial pressures on resources in the economy.