short term and financial stability. there are several reasons why financial bubbles can develop in periods of low inflation. first, a highly credible monetary policy results in low inflation expectations. explicit or implicit long - term price and wage contracts will become more common. it will take longer for higher demand to translate into higher inflation. cyclical changes will have less impact on inflation. moreover, periods of higher productivity growth may lay the basis for high corporate earnings, heightened optimism and reduced risk awareness. at the same time, with strong productivity growth, inflation remains low. banks that record low losses and solid results can increase lending without eroding their capital adequacy level. debt - financed investments may lead to a faster rise in house and property prices. a third factor is that strong international competition may contribute to curbing inflation during a period of strong economic expansion. china, because of its access to an abundance of cheap labour and its substantial production capacity, has contributed to a fall in prices for many manufactured goods. in norway, we have not experienced situations where there has been a conflict between the objectives of financial stability and price stability. prior to the last banking crisis, household debt rose sharply and house prices increased, while at the same time inflation was high. when monetary policy was eased last year, a sharp rise in domestic costs, with the outlook pointing to higher inflation, was accompanied by high credit growth. house prices are now falling, which in the long run will probably contribute to curbing credit growth. wage growth has been reduced and inflation is subdued. even though high asset prices and strong credit growth build up in a period of low inflation, these imbalances may influence inflation in the somewhat longer run. in that event, a tightening of monetary policy may be consistent with the objective of maintaining low and stable inflation over time. this will also stabilise developments in production. in order to achieve this, economists have recommended that monetary policy should place emphasis on developments in credit growth and asset prices when extraordinary conditions so warrant. in some cases, this will mean that a somewhat longer horizon than normal is applied in order to achieve the inflation target. the advantage is that substantial deviations from the target would be avoided in the somewhat longer run. if imbalances have been allowed over time to become severe, however, situations may arise where the interest rate should be set lower than implied by the inflation target, in order to prevent financial instability from being triggered. in the norges bank watch report of 25 september 2001

, and to gold. spain chose to spend a large portion of the windfalls on luxury and war. the attitude to working that this led to did not make it easy for these countries to get back on their feet again when the gold came to an end. many countries have had similar experiences in more recent times. the expression “ dutch disease ” comes from the turn of events in the dutch economy in the 1970s and 1980s after the revenues from the large gas finds in the groningen field were used to finance strong growth in public spending. when the gas revenues declined, economic growth came to a halt and economy policy had to be tightened. several studies of the relationship between long - term economic growth and natural resources show that countries with an abundant suppy of natural resources have tendency to experience lower economic growth. why? in principle, an abundance of natural resources is an advantage for a country's economy. one of the main findings of the studies on the relationship between long - term economic growth and the supply of natural resources is illustrated in the chart. the chart was made by jeffrey sachs and andrew warner, two of the most prominent researchers who have studied the phenomenon that has come to be known as the “ resource curse ”. they use the size of a country ’ s exports of natural resources in relation to gdp in 1970 to measure how rich the various countries are in terms of natural resources. there is a negative correlation between the supply of natural resources and economic growth in the period 1970 - 1989. the group of countries with the highest growth rates includes the asian tigers, which have had a very limited supply of natural resources. several of the oil - rich countries around the persian gulf fall into the group of countries with the lowest growth. this could suggest that it is not necessarily an advantage to have an abundance of natural resources. there are many factors that influence economic growth. sachs and warner only look at one of these factors in their chart. the relationship has proved to be relatively robust, however. it is true that some economists have argued that the negative relationship does not apply when institutional factors in the countries included in the study are taken into account. venezuela is one of the poorest performing countries in the sachs and warner study. the country has the largest known oil reserves in the world, and also has an abundance of other natural resources. venezuela has been among the largest oil producers since the 1920s. but as a result of an unsound economic policy, the country has not been able to achieve solid and stable economic