##ation of economic developments. in norway, we have a different institutional structure and monetary policy objective. when the krone has been stable and inflation shows signs of rising, norges bank ’ s first reaction is to inform the political authorities that measures other than those available to the central bank are required. norges bank would do the same if the requirement of returning the krone to its initial range could no longer apply. in a country with an inflation target, the central bank would deal with this itself, without first consulting with the government authorities. however, as mentioned, norges bank cannot with open eyes inflate or deflate the economy. norges bank ’ s mandate must be viewed in the light of the emphasis placed by the government authorities on conducting a disciplined, but active fiscal policy. the mandate gives norges bank a basis for conducting a monetary policy that provides a nominal anchor for the norwegian economy. * as used in the norwegian debate, “ parity policy ” refers to the monetary policy of the 1920s, when the norwegian krone was forced back to its former gold parity by means of highly deflationary policies. ( footnote not included in norwegian text ).

authorities have focused on exchange rate stability. price inflation has been low. yields on long - term securities indicate no expectations of rising inflation. the perception of market participants seems to be that norway will not resume a policy resulting in high inflation. the political authorities formulate norges bank ’ s mandate for the conduct of monetary policy. the mandate, formulated in the regulation issued in the spring of 1994, states : “ the monetary policy to be conducted by norges bank shall be aimed at maintaining a stable exchange rate against european currencies, based on the range of the exchange rate maintained since the krone was floated on 10 december 1992. in the event of significant changes in the exchange rate, policy instruments will be oriented with a view to returning the exchange rate over time to its initial range. no fluctuation margins are established, nor is there an appurtenant obligation on norges bank to intervene in the foreign exchange market ” ( my italics ). the regulation is based on the fact that we have a floating exchange rate. the first sentence means that this is a managed float. instruments are to be oriented towards maintaining a stable krone exchange rate against european currencies. norges bank chose to define the reference european currencies as the euro from 1 january 1999. the last sentence in the regulation distinguishes our system from a fixed exchange rate regime in that no fluctuation margins have been established around a central rate. to the extent this system calls forth associations with a fixed exchange rate regime, the concept initial range should be interpreted as a broad indication of a central rate around which the krone can fluctuate. the second sentence refers to significant changes in the exchange rate in relation to the initial range. it is important to note that no specific values have been defined for significant changes, such as the fluctuation margins of 2¼ per cent, 6 per cent and 15 per cent used by the eu countries in their exchange rate regime. significant must be given an economic content. a reasonable interpretation is that exchange rate movements must not influence expectations concerning price and cost inflation to the extent that changes in the exchange rate become self - reinforcing. the expressions with a view to, over time, aimed at and based on also show that norges bank has considerable scope for exercising discretion. exercising discretion in exercising this discretion, norges bank places emphasis on the fundamental conditions for achieving exchange rate stability over time. price and cost inflation must be brought down to the level aimed at by the