. it must have a theoretical structure so that we can easily examine the effects of alternative views of the economy ’ s functioning. 5. the model must reflect the bank ’ s view as a result of the modelling work, the bank ’ s views on relationships in the economy will evolve. at the same time, we are developing a model with relationships that we have confidence in. models will never provide us with a definitive answer. a model will always represent a simplification of reality. we must be pragmatic and exercise a good measure of judgement in addition. in my view, the most important role of models is to provide a framework and structure for the decision - making process, and to ensure that we do not change our views on the functioning of the economy without thorough reflection. the use of models must also be seen in connection with the uncertainty associated with the actual state of the economy and the driving forces that dominate at a given point in time. it can be a demanding task in itself to find the balance between incorporating new information on the one hand and making abstraction of pure noise on the other. allow me to illustrate. norges bank mainland gdp percentage rise on previous quarter seasonally adjusted - 1 - 1 - 2 - 2 - 3 - 3 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 sg cme 08. 06.. 2004 source : statistics norway the chart shows quarterly changes in mainland gdp, adjusted for seasonal variations. the figures show wide quarterly variations. it is uncertain whether this reflects fundamental conditions or statistical noise. norway is a small economy, and extraordinary events can have a substantial impact on aggregate figures. norges bank gdp mainland norway, sweden and the uk percentage rise on previous quarter. seasonally adjusted - 1 - 1 - 2 norway sweden uk - 2 - 3 - 3 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 sg cme 08. 06.. 2004 sources : statistics norway and ecowin these figures nonetheless fluctuate considerably less for sweden and the uk. i will not comment on whether the differences are real or merely statistical. let us now contrast these quarterly figures with our output - gap estimates using annualised figures. 16 this estimation may provide a basis for assessing the contours of cyclical developments. norges bank output gap for mainland norway, based on annual figures - 1 - 1 - 2 - 2 - 3 - 3 - 4 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 - 4 source : norges bank

- term liquidity. much digging and research remains to answer the question of how norges bank dealt with the challenges during the 19th century. so far, scholars have not found that the bank took emergency action when a financial crisis affected norway in 1847. but when the crisis hit again ten years later, the bank sent silver abroad to hamburg, which was the financial centre of the norwegian merchants. this support was important to enable norwegian industry to carry out international payments and have their bills of exchange discounted. in 1892 a new act was passed whereby norges bank became the bankers ’ bank. as the governor mentioned in his speech yesterday, this made norges bank a modern central bank in a legal sense. in 1899, kristiania ( as oslo was called at the time ) experienced dramatic fall in house prices. the financial bubble contained all the classical elements, such as a surging credit growth and house price inflation. norges bank had to carry out several rescue operations to save banks that were in trouble. 1899 was probably the first year the bank functioned as “ lender of last resort ”. if you take a walk around the neighbourhood, you will see the physical aftermath of this bubble. you will find buildings from the 1890s and from the 1920s onward, but virtually nothing built in the intervening period. the past years we have again been in troubled waters. in september 2008 the turbulence in financial markets developed into a full - blown global crisis. money markets seized up. confidence between banks vanished. liquidity dried up, interest rates rose sharply and equity prices fell. the long - term lending market dried up. international developments were also felt in norway. up until then we could almost take a well - functioning money market for granted in this country. but in the autumn of 2008 the money market stopped functioning and medium - term funding for banks was problematic. just as in 1816, norges bank acted as “ market maker of last resort ”. and so, the history of my own central bank, expanding the window from 25 years to 200 years, does not provide an unambiguous answer to the question of what defines a central bank. but even if we look at central banks in other countries, there are no clear answers. the way the financial crisis was handled varied across countries. in many places, for instance, substantial portions of the crisis measures remain on the central bank ’ s balance sheet. here in norway, the crisis measures relating to banks ’ medium - term funding are on the balance sheet of