). at the same time, however, surely at least a few of you here in the audience would seriously argue that a relationship such as the uncovered interest rate parity does not hold in reality and that it is a purely theoretical concept. the uncovered interest rate parity is, however, implied by the profit - seeking mechanism. indeed, it says no more than those profits must be equal across similar economies and that it is the deliberate search for the highest profit that makes them equal. of course, the criticism is more sophisticated than just saying that something is not working. the critics argue that the empirical evidence on the non - performance of the uncovered interest parity is overwhelming. yes, it is right that over recent decades much empirical testing has been done on historical data, most of it showing the poor ability of the uncovered interest rate parity to predict future exchange rate movements. it has even been shown that purely statistical models such as random walk outperform the uncovered interest parity in the short run. the question, however, is to what extent the tests were done correctly and more importantly to what extent is it at all possible to estimate a relationship that works with expectations using econometric techniques and historical data. fortunately for the proponents of economic modelling based on microfounded economic relationships such as the uncovered interest rate parity, the history of monetary policy provides many examples of exchange rate crises and speculative attacks that clearly support the functioning of the uncovered interest rate parity. however surprising it may be, the majority of currency crises and speculative attacks were in fact caused by central banks overlooking the uncovered interest rate parity relationship. usually it starts with a central bank deciding to boost its credibility by fixing its currency to a respectable one. the deutsche bundesbank and the rest of today ’ s eurozone members ( the former exchange rate mechanism members ) may serve as a useful example. by imposing the uncovered interest rate parity predicts that the pegging central bank either follows the interest rate policy of the leading central bank or faces significant pressure on its exchange rate. well, this is exactly what happened, for instance, in the 1980s when the banque de france tried to lower its interest rate below that of the deutsche bundesbank, and again at the beginning of the 1990s when the bank of england and banca d ’ italia did not want to follow the policy tightening of the deutsche bundesbank. in both cases the opening of a negative interest rate differential created depreciation pressures on the exchange rate.

. norway was hit by oil price shocks in the following years and economic reforms were implemented in several areas. after a period it became clear that the central government budget would be in surplus and that transfers would be made to the fund. norway ’ s experience from its first 30 years as an oil - producing nation led to the introduction of the fiscal rule, which has been a key element of norwegian economic policy for the past decade. report no. 29 to the storting of 2001 laid down guidelines for the phasing - in of petroleum revenues into the norwegian economy, establishing two main principles : economic policy must contribute to stable economic developments and be sustainable over time. by linking petroleum revenue spending to the expected real return on the fund – and not to current petroleum revenues – the fiscal rule provided for a gradual and sustainable phasingin of the revenues. if we can restrict spending to the return, the fund will never shrink. norway will also be less vulnerable to fluctuations in current petroleum revenues. ( chart 8 : effect on the size of gpfg of change in oil price and return ) in the first ten years after the establishment of the fiscal rule, the pace of the fund ’ s growth was determined by oil prices. prospects in 2001 indicated that a 25 percent higher oil price over a 10 - year period would increase the size of the fund by almost nok 800 billion. uncertainty with regard to the return on the fund was far less important for growth. this situation will change as the fund grows and oil and gas production declines. from 2020 to 2030, the oil price will play a less prominent role for the size of the fund, while the return on the fund will be all the more important. in the initial years, the actual return, adjusted for inflation and costs, was close to 4 percent. in recent years, with the financial crisis and the sovereign debt crisis, the real return has been lower, averaging about 2½ percent since 1998. source : lie, e. and c. venneslan : over evne. finansdepartementet 1965 – 1992 [ beyond our power. ministry of finance 1965 – 1992 ]. pax forlag, 2010. see report no. 25 to the storting ( 1973 - 74 ) : “ petroleumsvirksomhetens plass i det norske samfunn ” [ the role of petroleum activity in norwegian society ]. bis central bankers ’ speeches we should be careful about taking a rear -