When choosing between the two paths, the benefits must be weighed against the costs. In principle, a robust monetary policy should take account of uncertainty regarding the functioning of the economy. The policy rate in Norway has come down to a low level, approaching a lower bound. This has increased the uncertainty about the effect of monetary policy. Norges Bank has taken this uncertainty into account over the past year and reacted somewhat less to new information, whether the information has pulled in the direction of a lower or a higher policy rate. It has been appropriate to respond with caution. LOW INTEREST RATES COULD BE A PRECURSOR TO FINANCIAL INSTABILITY A period of low interest rates can engender financial imbalances. There is a risk that growth in property prices and debt will become unsustainably high over time. With high debt ratios, households are more vulnerable to cyclical downturns. In the event of a reduction in household income, debt burdens may become heavy to bear, forcing households to reduce spending on consumption, with a deeper downturn as a result. For Norges Bank, the consideration of restraining the build-up of financial imbalances has long been an element of a robust monetary policy. The aim is to mitigate the risk of particularly adverse economic outcomes further ahead. Chart: Estimated path for consumption during recessions A recently published study by Norges Bank examines developments in private consumption during recessions. The analysis is based on data from 61 international recessions in the past four decades (Hansen et al (2015)).

The economies of Southeast Asia are particularly exposed to such reconfigurations as they have high participation in global value chains, but are located mostly downstream in those value chains, and thereby face higher risks of being left out. •  At the same time, greater importance attached to ESG considerations have led to new standards and expectations--new global rules of the game--about how countries can participate in international trade. •  For small open economies, the challenge is to find their place in the rapidly evolving international trade landscape. How should they position themselves between the major trading powers? To what extent can regional trading blocs help to increase their voice in the international arena? Where are the best opportunities to plug themselves into a new configuration of global supply chains? •  Small open economies can best navigate and benefit from the shifting trade landscape by keeping their outward orientation, strengthening domestic institutions, and undertaking structural reforms that enhance flexibility. This would allow them to harness technology to upgrade their production capabilities and adapt to new trade patterns, including integration into evolving global supply chains. Services trade, especially in intermediate services such as telecommunication services and IT management, offer large growth potential. As world trade bounces back following the pandemic, opportunities for exports of services are likely to exceed those in goods. Active engagement in bilateral and regional free-trade arrangements will also help to diversify the trade base. •  Our economies must also quickly adapt to the new global rules of the game.