the revisions of the forecasts, economic agents are kept up to date with the central bank ’ s reaction pattern. since the world changes, our interest rate forecast may at times come as somewhat of a surprise. and in situations where we observe that market participants are not well enough informed about our reaction pattern, we do not hesitate to surprise the market. the huge shock to the international – and hence the norwegian – economy during the financial crisis in 2008 may serve as an example. in this case, we were able to guide the market and affect expectations when we presented a new interest rate forecast. [ chart : december 2008 : market rates shifted down markedly after policy announcement ] as shown by the black line in this chart, we cut the key policy rate substantially at the monetary policy meeting in december 2008. the dashed blue line, which shows the market path the day before we announced the rate cut, indicates that a significant cut was anticipated by the market. however, in addition to cutting the policy rate, we also published a new interest rate forecast, shown by the solid purple line, which was considerably lower than our previous forecast, shown by the dashed purple line. the market had not fully anticipated this, and forward rates shifted down markedly after the meeting, as indicated by the solid blue line. the interpretation could be that we provided news to the market about the strength of the action deemed necessary by norges bank as a response to the financial crisis. on this special occasion, when uncertainty was larger than usual, we believe that publishing the interest rate forecast was particularly helpful in making monetary policy more effective. this example suggests that we can indeed guide the market and affect expectations. [ chart : interest rate expectations one year ahead ] further evidence supporting our ability to affect expectations comes from household survey data. in this chart, the purple line shows a diffusion index of households ’ bank rate expectations one year ahead. 13 the index correlates well with our forecast for the change in the key policy rate over the coming year, derived from each vintage of our interest rate forecast. the chart is consistent with households being well informed about the interest rate changes predicted by norges bank. concluding remarks let me summarise : norges bank has provided forward guidance through publishing conditional forecasts for the key policy rate for almost a decade. our overall experience is positive. we have indications that our reaction pattern is well understood, that agents understand the conditionality of our forecast and that they do pay attention to our predictions of future rates. over

at times have a tendency to underestimate the fund ’ s function as a stabilisation mechanism. the capital outflows through the fund contribute to both curbing the appreciation of the krone and maintaining its stability. since the summer of 2004, the krone exchange rate has appreciated by about 5 per cent, as measured by the trade - weighted exchange rate index ( twi ). the chart shows the krone exchange rate and oil spot prices from 1999. the chart indicates that there is no clear relationship between the nominal exchange rate and oil spot prices over time. an appreciation of the krone has accompanied higher oil prices in some periods and lower oil prices in others. the correlation between oil prices and the nominal exchange rate has therefore varied over time. however, since the introduction of the inflation target in march 2001, the average correlation has been about zero. this is a remarkable result and may indicate that the petroleum fund has shielded the nominal exchange rate from movements in oil prices. therefore, there is cause for some optimism regarding the possibilities of isolating the mainland economy from variable oil prices in the short and medium run. in the long run, however, we cannot insulate the real exchange rate from developments in the petroleum sector or the use of petroleum revenues. i will return to this later. an increase in oil prices may nevertheless generate expectations of increased petroleum revenue spending ahead, particularly if high oil prices are assumed to persist. such expectations may exert appreciation pressures on the krone. the chart shows that future oil prices 6 - 7 years ahead have increased more than spot prices since january 2004. this sharp rise may help to explain some of the appreciation over the past year. in addition, there may be expectations that developments will be more favourable in the norwegian stock market than in foreign markets when oil prices rise. this may also have contributed to strengthening the krone. however, when estimating the future value of the petroleum fund, the expected decline in the level of production on the norwegian continental shelf should also be taken into account. in addition, there has been a tendency lately to overestimate production when looking a few years ahead. investment in the petroleum sector is an important source of business cycle fluctuations in norway. investment rose sharply in the 1970s and 1980s and reached a peak in 1998. mainly as a result of persistently high oil prices and expectations that oil prices will remain high, investment in the norwegian petroleum sector may again reach record levels this year. norges bank ’ s regional network currently