That is why a stronger regulatory and supervisory environment, including better protection of property rights, creditor rights and information, have all been shown to be positively associated with higher level of financial development. In this respect, despite the wide country variation, most of CESEE countries are ranked below EU-28 average. Chart 17: Regulation of securities exchanges (ranking based on 138 countries, 2016)*  Third, regional cooperation regarding market infrastructure can boost capital market development. Significant efforts have been made to linkup the national exchanges and harmonize legislation and regulation across the entire region, without requiring any country to give up their national stock exchanges or their rights to regulate their home markets. The so-called “passporting” framework has been put in place that allows for issuers, investors and market intermediaries to operate in each other’s national market, thereby creating a vastly larger ‘common’ market, without sacrificing any institutions or independence. The cooperation of stock exchanges in Baltic countries is most advanced. As part of Nasdaq OMX group, these countries form the Baltic market 12. Further authorities` efforts in CESEE countries should address several issues: 1) strengthening existing regional alliances of stock exchanges (Nasdaq Baltic Market, CEESEG, SEE Link), 2) foreign listing and market access, 3) Central Securities Depositories –options for regional connection, 4) Central Clearing Counterparties for cross border settlements, 5) Creating regional markets through alignment of national legislations. Fourth, the role of international financial institutions should also be highlighted.

A high leverage ratio makes the financial system, and in effect the whole economy, more sensitive to fluctuating asset prices. The present downturn in Norway was not triggered by moving asset prices, but rather by the international downturn. Still, the effect of the international downturn on our economy is probably stronger than it would have been with a better regulatory framework. A consensus is emerging internationally that new tools are needed in order to make the financial system more robust with respect to macroeconomic fluctuations. Moreover, the financial system should help dampen rather than amplify or even cause fluctuations. The new tools – macro-prudential policies – are needed regardless of the monetary policy regime in place in any given country. For Norway, as a small EU outsider, it is hard to see any better option than inflation targeting. Indeed, it has been a strength in the current downturn to have a credible inflation targeting regime in place. We have tried to have a long-term perspective on attaining the target. This was especially important when the economy was hit by a supply shock, and we needed to trade off reaching the inflation target and closing the output gap. Inflation was below target until last year. Now, hit by a demand shock and looking ahead, we know that a trade-off is absent – the economy needs stimulus. But in the face of an unusually high degree of uncertainty, and given an unusually large shock, I believe that it is sensible to continue to be patient.