The studies I have mentioned helped to define a range within which inflation is no longer a factor that distorts economic choices. The ECB pursues, as an objective of monetary stability in the medium term, an inflation rate below, but close to, 2%, which is the upper limit of this range. The macroeconomic model on which the ECB’s monetary policy strategy rests is imbued with contemporary macroeconomics, based on dynamic optimisation and on the centrality of forward-looking expectations.5 At the same time, the model is broader and well structured and corrects the simplifications of the pre-crisis neo-Keynesian paradigm with its prescriptive approach to optimal monetary policy. The weakness of this paradigm was, and is, its inability to recognise the importance of financial frictions and the role of credit and money. This has to do with the fragility of the theoretical foundations that formalise the links between the real economy, financial imbalances and the level of confidence. Ignoring money is tantamount to assuming an absence of risk and uncertainty. Without risk, Keynes would have said, there would be no money. The preference for liquidity is not justified in an economy without uncertainty. But the neo-Keynesian model excludes the possibility of default. In it, risks in the financial sector can be isolated and therefore have no effect on the real economy. The financial crisis has clearly highlighted the weaknesses of this system. Macroeconomic theory has begun to reflect on the neo-Keynesian system and these studies are now one of the liveliest areas of analysis.

Chart: Relative labour costs Improved cost-competitiveness is an important factor in enabling new exports to emerge as the production of oil and gas dwindles. Tourism in Norway has risen markedly in recent years, and exports of traditional manufactured finished products have shown an appreciable increase. However, the increase is not sufficient to compensate for a decrease in exports from other sectors of the mainland economy. Total mainland exports were lower last year than in 2014. The most important reason for this is the marked decrease in oil service industry exports in the wake of the fall in oil prices. But even excluding this part of the export industry, growth in mainland exports since 2014 has been lower than growth in trading partner imports. Chart: Mainland exports Weak export growth partly reflects supply-side constraints in some sectors. Production stoppages at several large companies led to a decrease in industrial commodity exports last year, while salmon lice infestations contributed to a decline in seafood exports. Other service sector segments in addition to the oil service industry also appear to have been adversely affected by the downturn in the global petroleum industry. A weaker krone is also an advantage for Norwegian firms competing in the domestic market. Competitiveness in the oil service industry has improved considerably, particularly after the substantial cost-cutting measures introduced by companies in this industry in recent years. We have recently seen that a larger share of contracts on the Norwegian continental shelf is being awarded to Norwegian companies.