Households and firms optimise – they are forward-looking and they use available information efficiently. Unlike our previous model, things add up: flows add to stocks, profits are allocated, and so on. There is a high degree of simultaneity in the way the model is solved. It no longer makes sense, nor is it at all easy, to consider the model equation by equation. This provides a greater degree of discipline on Committee members and staff, who are now forced to confront the full implications of their judgements more explicitly. If someone wants to change one of the economic relationships, they need to say why, and acknowledge the possible implications for other behavioural relationships. If, for example, we want to assume that the trend rate of labour productivity growth has changed, the model requires us to recognise that there are implications for both demand and supply. Faster productivity growth will increase productive capacity, but income will also grow faster. So what might that mean for demand now? This is a definite advance – providing the general equilibrium mechanisms in the new model do in fact reflect our ideas about how the world works. But it also makes for a more demanding discussion. There are no easy fixes, and it can be difficult to accommodate views that differ from the model’s paradigm. As an example, the model is firmly rooted in the rational expectations tradition. And we have assumed that monetary policy is credible. Both are perfectly reasonable, arguably essential, modelling assumptions.

As the operator of NBO, Norges Bank is also working on measures that will strengthen the settlement system centrally. 5  Committee on Payments and Market Infrastructures (CPMI) – previously the Committee on Payment and Settlement Systems (CPSS) – and International Organization of Securities Commissions (IOSCO). 6  The financial infrastructure comprises the payment system and securities settlement system, including central counterparty systems. 7  The following systems were evaluated: Clearing and settlement systems for payments, the securities settlement system, the VPS registry function and the central counterparty Oslo Clearing, the latter two in collaboration with Finanstilsynet. The evaluation was presented in the Norges Bank Financial Infrastructure Report 2014. 4  BIS central bankers’ speeches  Outsourcing Today’s financial infrastructure is based on advanced technical solutions. This places considerable demands on system developers and operators. This expertise is costly and may be difficult to retain. Owners have largely outsourced technical operations. This provides greater flexibility. At the same time, outsourcing can make it more challenging to manage operational risk. The fixed costs associated with operation and development can be high. This allows operators to exploit economies of scale. A possible result of outsourcing is that several systems use the same service provider. This may reduce costs. On the other hand, such a concentration may weaken competition, while risk is concentrated in a single provider. Any failure in the service provider may then impact large parts of the financial infrastructure. The systems are vulnerable to technical failure and to external attacks.