A rapid build-up or sell-down of positions is therefore not profitable even if prices change. Over many years ahead, the amount of nominal fixed income investments will exceed the amount of real assets. In the long run, it is conceivable that investments in the two classes may be more equally distributed. In the development of the investment strategy that I have presented, weight has been given to exploiting the Fund’s long-term investment horizon and size. The strategy is based on objectives and expectations regarding the Fund’s overall real return over time. Moving forward, Norges Bank’s operational management of the Fund should probably shift towards absolute return and absolute risk. BIS Review 145/2010  7  Transparency and accountability A clear division of responsibility between the Ministry of Finance as owner and Norges Bank as manager is an important component of the Norwegian model. Moreover, it is important that transparency and accountability are prominent features of the model. Management objectives have been clearly defined. Norges Bank and the Fund’s owner have always given weight to transparency with regard to the management of the Fund. The standard was set at an early stage when the Executive Board decided that an exhaustive list of the Fund’s investments should be published at the turn of each year and the first complete list was published in the annual report for 1998. This decision has paved the way for all the subsequent discussions about various individual investments.

This framework of macro/financial policies and institutions have allowed the country to take big steps in achieving economic stability, with inflation around the target, surpluses in fiscal balances and in the current account of the balance of payments in times of bonanza, the real exchange rate aligned with its fundamentals and output growing around trend. In addition, this framework of policies and institutions imprints a countercyclical character of fiscal policy and favors the use of countercyclical monetary policy. In particular, in this setting monetary policy reacts to deflationary effects of a weakened economy and vice-versa, so it naturally helps to stabilize the effects of demand-side shocks. In the present conjuncture, this macro/financial policy framework should favor the way the Chilean economy absorbs swings in the international scenario. Two factors contribute. First, with inflation expectations well anchored around the target, the disinflationary effect of idle capacity (i.e., a negative gap between output and trend output) originating in less favorable external conditions, would naturally lead to a countercyclical monetary policy. At the same time, the floating regime permits the real exchange rate to adjust to changes in the international scenario. Overall, depending on the size and on the inflationary effect of said adjustment, it could restrict monetary policy reaction. Therefore, the composition and transmission of the external shock is very relevant in the most adequate policy reaction. Second, fiscal policy, whereby spending is tied to permanent income of the government, largely eliminates the traditional pro-cyclicality that Chile has shown in face of shocks in the terms of trade.