Exports of other commodities add to the vulnerability of our economy to terms of trade shocks.3 The total commodity-related share of exports has risen from less than 40 percent in 1978 to a good 65 percent in 2012. Rules-based fiscal policy We know that commodity producing countries tend to experience pronounced economic cycles. However, as noted by Jeffrey Frankel (2011)4, this can be reduced through wellchosen regimes for fiscal and monetary policy: “We need to set up regimes ex ante which are more likely to deliver the right result ex post, in a world inhabited by human beings, not angels.” In Norway, the act of parliament relating to the oil fund, passed in 1990, provided a new framework for fiscal policy. The policy guidelines were clarified in 2001, and rules governing the interaction between Norway’s petroleum wealth and fiscal policy were established. These rules state: Chart: The Government Pension Fund Global and the fiscal rule  2  For more information about the Norwegian petroleum sector, see “Facts 2012: The Norwegian petroleum sector”, Ministry of Petroleum and Energy, http://www.regjeringen.no/en/dep/oed/documents-andpublications/Reports/2012/facts-2012-the-norwegian-petroleum-secto.html?id=714606. 3  Using a factor-augmented vector autoregressive (FAVAR) model that allows them to distinguish between different groups of countries, Aastveit et. al (2012) find that demand from emerging economies (most notably from Asian countries) is more than twice as important as demand from developed countries in accounting for the fluctuations in the real price of oil and in oil production. See Aastveit, Knut Are, Hilde C. Bjørnland and Leif Anders Thorsrud (2012): “What drives oil prices?

4  BIS central bankers’ speeches  Management of the fund Besides making monetary policy decisions, one of Norges Bank’s main tasks is to manage Norway’s oil fund. Chart: Governance structure The Ministry of Finance holds the political responsibility for the fund. The overall management principles and strategy are anchored in parliament and the Ministry reports to parliament at regular intervals. The management of the fund is fully delegated to the central bank – to Norges Bank. Our task as manager of the fund is strictly commercial: to maximise returns within the guidelines defined by the government. All investment decisions are made by Norges Bank Investment Management, a separate division within the central bank. Neither Norges Bank’s Executive Board nor the Ministry of Finance is involved in any individual investment decisions. This governance structure was set up to ensure that the fund was not used as an instrument of foreign policy. The purpose of the fund is to ensure that future generations receive their fair share of Norway’s petroleum wealth. To achieve this, the fund was designed to be invested for the long term. Size and a long investment horizon are the fund’s two key characteristics. Together, they form the backbone of the fund’s investment strategy: •  First, the fund’s long investment horizon implies substantial risk-taking capacity. We are able to act as a countercyclical investor. •  Second, the fund’s size makes it possible to take advantage of investment opportunities worldwide, in a number of asset classes.