, for instance, the us dollar and pound sterling, but less against the swedish krona. measured by the trade - weighted index calculated as a monthly average, the krone touched a record low level earlier this summer. we can derive indicators of market expectations concerning future exchange rate movements and inflation. implied forward rates can be interpreted as the expected nominal interest rate between two future dates. for a given expected real interest rate, the forward rate provides some indication of inflation expectations. chart 6 e alberola, s cervero, h lopez and a ubide ( 1999 ) : “ global equilibrium exchange rates : euro, dollar, “ ins ”, “ outs ” and other major currencies in a panel cointegration framework ”, imf wp / 99 / 175. nordic forward rate differentials against dem 16 august 2000 in the long term, ie up to ten years ahead, it is highly unlikely that market participants have specific expectations about the economic situation. if the equilibrium real interest rate is the same between countries, the differential between norwegian and foreign long - term forward rates may be interpreted as the differential in expected inflation plus any risk premium. the risk premium may be partly attributable to the limited volume of norwegian financial markets. as such, the long - term forward rate differential between norway and germany may be interpreted as the expected inflation differential between norway and the euro area in the future - plus any risk premium. chart 7 shows that the forward rate differential between norway and germany, ie the differential between short - term interest rates at future dates, is gradually narrowing, and is not much greater than for the other nordic countries. i would like to emphasise, however, that calculations of this sort are uncertain. chart 7 probability distribution for nok / eur in one month on the basis of the prices for various currency options, we can calculate the implied probability distribution for the krone exchange rate. in simple terms, one can say that the further to the left in the diagram the figure is, the higher a future appreciation of the krone is priced. a narrow, symmetric curve - or a bell - indicates that the uncertainty surrounding the future krone exchange rate is considered to be relatively slight, and that the risk of a depreciation or appreciation is priced symmetrically. the chart shows that the implied probability distribution for the krone has changed over time. uncertainty surrounding the future krone exchange rate appears to have diminished. chart 8 probability distribution for usd / eu

stated the following as early as 1979 : 7 “ what the central bank can do, on the other hand, is to use its professional judgment to conduct a policy for demand management, which is in line with the more long - term objectives and guiding principles that have been drawn up by the political authorities. this presupposes, however, that the central bank also has the possibility of objecting to requests from the same authorities when their efforts to solve more short - term problems bring them into conflict with more long - term objectives. ” – the other lesson drawn from the experience of the 1970s and 1980s was that it was not possible to reduce unemployment in the medium and long term by merely accepting somwhat higher inflation. faced with the question of whether an increase in inflation from say 10 to 12 per cent was acceptable if stimulating the economy could at the same time reduce unemployment from say 2 to 1½ per cent, the decision - making authorities would most likely have been inclined to answer yes. but experience showed that this was not an available option. an attempt to increase output beyond the level that is consistent with stable inflation will over time lead to steadily rising inflation. economic agents will eventually incorporate higher inflation into their inflation expectations. in the long run, the result will only be higher inflation, not higher employment. output and employment will return to their potential level. – the third factor is the special challenges to stabilisation policy posed by petroleum revenues. norway ’ s export revenues and government revenues can be expected to be very high as long as production remains high and as long as the global market allows producing countries to extract substantial economic rent. at the same time, we know from experience that revenues may vary sharply from year to year. as a result of the high level of earnings and fluctuations in these revenues, the most important contribution fiscal policy can make to stabilising the norwegian economy is to provide a sound, long - term strategy for the use of petroleum revenues. attempts to use the central government budget to fine - tune economic activity may have a destabilising effect if these attempts are perceived as a breach in the long - term strategy for the phasing in of petroleum revenues. it is necessary to show that fiscal policy is applied symmetrically in periods of economic expansion and contraction. from the mid - 1980s, during and after the credit bubble, it was recognised that a substantial revision of economic policy would be necessary and that the problems created by inflation had to be taken seriously. the exchange rate