The Norwegian business sector showed a high degree of willingness and ability to shift to oilrelated activity during the boom. The proximity to the continental shelf was an advantage for many firms. The shift to an oil-driven economy with a high wage capacity has been a comfortable journey. The journey forward, where the oil service industry must downscale and other trade-exposed industries must grow, will be more challenging. After many years of relatively high wage growth in Norway, the domestic cost level must again be brought more closely into line with that of our trading partners. A necessary adjustment of the cost level in Norway can occur by means of lower wage growth in Norway than in other countries and a depreciation of the krone exchange rate. The economic policy pursued will be of importance for how the adjustment takes place. In Norway, monetary policy is geared towards keeping inflation low and stable. The operational target of monetary policy is consumer price inflation of close to 2.5 percent over time. The inflation target provides the economy with a nominal anchor. When inflation expectations are firmly anchored, monetary policy serves as the first line of defence when the economy turns down. Over time, monetary policy can only influence inflation. Monetary policy cannot assume a primary responsibility for delivering the necessary structural changes in the Norwegian economy. But via the exchange rate channel, monetary policy can help facilitate the necessary restructuring process. Without our own national currency the situation would be more challenging.

Under the influence of changes in banking practices, customers may be able to have access to a wider range of financial products and services. Furthermore, efficiency gains will allow products to be offered at lower prices. In the euro area, electronic finance thus compounds the effects of the creation of the single currency, adding impetus to progress towards integrated financial markets at an area-wide level. Monetary policy needs to take account of these developments. In particular, it is important to monitor the resulting modifications to the financial structure of the economy so as to be able to track changes in investor behaviour, not least in order to assess the transmission channels of monetary policy. Moreover, in this context the possibility of excessive risk taking in the banking sector should not be neglected. Faced with eroding margins in "old businesses", banks may develop their activities in heretofore unexplored fields, by geographical expansion or by product development. In such circumstances, some banks may misjudge the risks inherent in the new activities, as a result of a lack of information, knowledge or skill. In such a situation, the prudential supervision of banks can help by assessing whether the capital buffers of banks remain sufficient for the banking sector as a whole. In financial markets, the issues are broadly similar. It is widely recognised that financial markets have been significantly transformed by the emergence of on-line brokers and electronic trading systems over recent years. In general, these developments have the potential to improve the functioning of financial markets.