the same time, persistently low interest rates pose challenges to financial stability. yet despite the fact that monetary policy has been stretched far, no country has retreated from 8 / 9 bis central bankers'speeches the basic rationale behind flexible inflation targeting. in norway, the ministry of finance is now considering whether the regulation on monetary policy should be modernised. after more than fifteen years, this is only natural. it should nevertheless be noted that the system has functioned well. since the introduction of inflation targeting, the norwegian economy has been exposed to a number of major shocks, most of which have originated beyond norway ’ s borders. in responding to these shocks, flexibility and scope for judgement in the conduct of monetary policy have been significant strengths. inflation has generally been low and stable since the beginning of the 1990s and has remained so throughout the period of inflation targeting. at the same time, monetary policy has contributed to dampening fluctuations in the real economy. 5 as long as inflation is firmly anchored, monetary policy can address other concerns. we can seek to counteract the build - up of financial imbalances by keeping the interest rate a little higher than would otherwise be the case. but norges bank cannot take the main responsibility for developments in house prices and debt. nor can monetary policy influence the economy ’ s longterm growth capacity. the past couple of years have been demanding for the norwegian economy. monetary policy can be supportive, but cannot take primary responsibility for needed structural adjustments. the shift towards a less oil - driven economy lies ahead. conclusion the original task of meteorologists was to forecast the weather so that ships could find shelter and property could be secured before the storm hit. today, climatologists give advice on how we can curb global warming. when economists take the temperature of the economy, they do so in order to forecast its future path. this exercise provides insight that helps the business sector adapt and facilitates the conduct of economic policy. the greatest challenges we face are global. in addressing these challenges we should build on fundamental economic principles. the climate challenge is calling out for cost - effective solutions, nationally and globally. the liberalisation of global trade has brought undeniable benefits. but insufficient attention has been paid to the other side of the coin : not everyone has shared in the benefits. the signs of growing protectionism are of concern. in a world facing common problems, going it alone is not the solution. if we all pull together, the burden becomes easier to bear. come what

technology, it may be necessary to reinforce climate policy with funding for basic research and for the development and deployment of climate - friendly processes and products. at the same time, we should be on our guard against attempts to abuse the “ green ” epithet to qualify for public subsidies. the climate challenge will not be 6 / 9 bis central bankers'speeches resolved by having the authorities designate the “ winners ” in the transition to green technology. regulations and subsidies in areas subject to emissions trading or carbon taxes often entail a waste of energy and money. the efforts to reduce global warming will provide a seedbed for new production methods, new businesses and new jobs. some of these will be in norway. but it is difficult to see how we have an advantage over other countries in this area. the transition to a low - carbon society is necessary but is unlikely to take over as a new engine of growth. oil revenue spending needs to be reined in it may give cause for reflection that norway, as a nation, has gained so much from a resource that is an important source of global warming. if the countries of the world deliver on the commitments made in the paris agreement, carbon taxes may be much higher than they are today. this may make our oil production less profitable, but it will strengthen the work on climate change. a large portion of government revenues from oil production has been transferred to the government pension fund global – the oil fund – which is invested widely in equities, bonds and real estate. this has provided for good returns and risk diversification. interest rates worldwide have fallen to low levels in recent years. the prospect of continued moderate global growth means that interest rates may remain low ahead. the estimated expected real return on the oil fund has therefore been revised down and is now quite a bit lower than 4 percent. in december, norges bank advised the ministry of finance to increase the equity allocation in the fund. 2 historically, equities have produced higher returns than bonds, but the returns have also been more volatile. a lower return on bonds is the price we pay for dampening volatility in the fund ’ s value. in recent years bonds have become a more effective, but also more expensive, hedge against volatility. both conditions suggest a somewhat lower allocation to bonds. changes in the norway ’ s overall petroleum wealth also warrant a lower allocation to bonds. apart from the oil fund, this wealth consists of oil and gas still in the ground. there has always been a