This was demonstrated by the Phillips curve (named after the economist A.W. Phillips), which showed that low unemployment has historically accompanied high wage growth. In the 1960s, Milton Friedman and Edmund Phelps rejected the idea that this empirical relationship could be used to reduce unemployment in the long term. Any attempt to reduce unemployment would over time only result in higher inflation, without affecting employment and output. A more detailed discussion of these developments in macroeconomic history can be found in Snowdon and Vane (2005). 7  See Schreiner (1982). 4  BIS Review 111/2008  that has now been established should, in addition to directly contributing to stabilising the krone exchange rate, also curb price expectations.” 8 In recognition of this fact, Norges Bank gradually gave greater weight to influencing inflation developments as a prerequisite for a more stable krone exchange rate over time. As stated in an article in the Norwegian daily newspaper Aftenposten in May 1999 9 : “In the discretionary assessments on which monetary policy is based, Norges Bank gives weight to fundamental preconditions for exchange-rate stability over time. Price and cost inflation must be brought down towards the level aimed for by the euro area countries. At the same time the situation must be avoided whereby monetary policy in itself contributes to a downturn with deflation.” The division of responsibility in economic policy was even more clearly defined when the government presented new economic policy guidelines in March 2001.

Our monetary policy measures continue to underpin domestic demand. Private consumption is fostered by ongoing employment growth and rising wages. At the same time, business investment is supported by solid domestic demand, favourable financing conditions and corporate profitability. Housing investment remains robust. In addition, the expansion in global activity is expected to continue supporting euro area exports, though at a slower pace. The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. At the same time, risks relating to protectionism, vulnerabilities in emerging markets and financial market volatility remain prominent. 1/2  BIS central bankers' speeches  Euro area annual HICP inflation increased to 2.1% in September 2018, from 2.0% in August, reflecting mainly higher energy and food price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level over the coming months. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening and broadening amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to pick up towards the end of the year and to increase further over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth. Turning to the monetary analysis, broad money (M3) growth stood at 3.5% in September 2018, after 3.4% in August. Apart from some volatility in monthly flows, M3 growth is increasingly supported by bank credit creation.