in the us and japan. this is no coincidence. there is a robust rationale for aiming at 2 % or close to 2 % and, therefore, not tolerating persistent lower inflation. first, since the work of the boskin commission, which, i believe, is also valid for the euro area, we know that available measures tend to overestimate this rate. so it is legitimate to consider that, technically, an inflation rate of 1 % may, in reality, be zero. then, if the central bank aims at 1 %, any negative shock would plunge the economy into deflation. to absorb such a shock, some margin – in the order of an additional 1 % – is necessary. this simple reasoning provides a very strong basis for the current definition. the objective of price stability, therefore, must be symmetric. the reaction function of central banks should equally be perceived as symmetric. they should be equally vigilant about any deviation from this objective, in either direction, up or down. a central bank that remained passive with persistently low inflation would in effect encourage a downward drift in expectations. the case for symmetry is even stronger today as we are confronted with several sources of uncertainty, regarding : the economic situation ; the transmission mechanism of monetary policy ; and the underlying causes for low inflation. we should avoid adding a further uncertainty concerning the true priorities of central banks. for the same reason, it would be unwise to entertain the idea that the inflation objective should be revised, – upward or downward. the analytical argument for a higher target sounds attractive. for a given equilibrium real rate, a higher inflation objective would reduce the probability of hitting the zero lower bound in the future. this may be a case, however, where analytics do not provide a proper guide for policy. the truth is we do not know how inflation expectations would react to a change in objective. we are in a period where expectation dynamics are highly uncertain. empirical evidence collected over the last 15 years shows that, in the euro - area at least, a rate of inflation significantly over 2 % triggers very negative reactions from the general public. finally, the credibility of central banks in sticking to their objective could be jeopardized by the change of definition of price stability. and that would generate risk premia and additional volatility in financial markets. the challenge in achieving price stability implementing a symmetric mandate in current circumstances is not an easy task. i see three challenges in the current situation first, in finding the

led to lower rates in countries where the cyclical situation, in isolation, would have implied higher rates. this was the case in norway until oil prices fell. other small open economies have been in the same situation. chart : house prices these countries have imported low interest rates and experienced rapidly rising house prices and debt. they have introduced measures to limit elevated debt in order to prevent imbalances from building up further. in norway, stricter mortgage lending requirements have been imposed on banks. these measures have probably contributed to the recent correction in norwegian house prices. over the past year, house prices have fallen. the shift in the housing market has reduced the risk of an abrupt and more pronounced decline further out. household credit growth remains high, but over time lower house price inflation will dampen credit growth. the exchange rate places a limit on how far norwegian interest rates can deviate from foreign rates. but with a floating exchange rate, monetary policy can help to stabilise the economy when it is exposed to shocks. in the previous monetary policy regulation, there was a reference to the stability of the krone exchange rate. this has been omitted from the new regulation, but will not lead to material changes in the conduct of monetary policy. how norges bank will react to movements in the exchange rate will depend on how these fluctuations affect the outlook for inflation, output and employment. chart : exchange rate and oil prices a recent example is the monetary policy response to the negative oil price shock in 2014. the exchange rate served as a shock absorber. with confidence in the inflation target, monetary policy was able to underpin a weaker krone. the krone depreciation, combined with moderate wage settlements, contributed to a marked improvement in business profitability and competitiveness. chart : gdp for mainland norway let me now turn to the outlook for the norwegian economy. two years after the cyclical trough was reached in norway, growth has gained a firm footing. in our latest monetary policy report, the negative output gap is projected to narrow and close early next year. there are prospects for solid growth in business investment and renewed optimism in the petroleum industry. a number of large development projects will contribute to a rebound in oil investment in the coming years. the impetus from abroad has strengthened and exports are picking up. on the other hand, housing investment has fallen, and is likely to decline further. 3 / 4 bis central bankers'speeches growth in household consumption picked up markedly last year. higher real wage growth and