svein gjedrem : investing for the long run dinner speech by mr svein gjedrem, governor of norges bank ( central bank of norway ), at the norwegian government pension fund ’ s investment strategy summit, oslo, 3 june 2009. * * * minister, ladies and gentlemen, we are gathered here for a conference – and a dinner – centred on investing for the long run. and indeed, it is my expectation that the government pension fund – global will endure through good times and bad times in the markets to provide a permanent revenue stream for our children and grandchildren. i would like to thank all the participants for the good advice and interesting analyses you have presented here today. it has really been inspiring to attend, and to listen to your presentations and discussions. the oil age in norway has spanned some 40 years, and it appears that it will continue for years ahead. the idea of a fund arose in the early 1980s. up to 1995, all government revenues were used for investment in the petroleum sector and to cover budget deficits during the recession around 1990. the formal structure of the fund was actually decided on in 1990 in the midst of a banking and currency crisis, with meagre growth and high unemployment. i have every reason to believe that the people that prepared the proposal did not think at the time that the savings in the fund would prove to be of any significance. by setting up the fund – with investment abroad – it became possible for norway to establish a path for the production of oil and gas that is independent of the profile for petroleum revenue spending. the alternative to a fund would have been to regulate the extraction path by putting a conservative upper limit on annual extraction. the fund serves as a buffer between wide swings in petroleum revenues and domestic spending. the decisions on annual revenue spending can be made independently of the size of the revenues. as a result, swings in petroleum revenues do not have an automatic impact on the norwegian economy. the existence of the fund contributes to stabilising the nok exchange rate, and countercyclical economic policies are more effective for a country with net foreign assets. the virtues of the fund structure are many. the authorities have established a transparent system for managing government petroleum income as all oil revenues are transferred directly into the fund. the norwegian parliament must adopt a resolution on any use of the return or the capital of the fund. oil revenues are not earmarked. there is no hidden use of revenues, or any use for special

a lot of capacity gaps will need to be filled if member countries must conduct monetary and fiscal policies at the cutting edge of best practices. an articulation of the gaps is therefore in order. • capacity for analysis of monetary survey staff in monetary and fiscal policy departments must be familiar with the intricacies of monetary survey – a consolidation of both the balance sheets of central banks and deposit money banks. the monetary aggregates are summarized in the assets and liabilities sides of the survey. the financial database for liquidity forecasting is contained in the monetary survey. • training in macroeconomic relationships the staff of the relevant departments of central bank and ministries of finance and national planning commission should be familiar with macroeconomic relationships and financial programming. to this end, an advantage should be taken of waifem / imf annual courses in financial programming. • training in econometric modelling and forecasting familiarity with econometric methodology is critical to effective conduct of liquidity forecasting for sound monetary policy. again waifem ’ s courses in econometric modelling and forecasting is a welcome initiative to bridge capacity gaps. • understanding the macroeconomy finally, liquidity forecasting cannot be effectively done without sufficient understanding of the macroeconomy, stance of demand management policies and outlook for the future. all this constitutes the environment in which forecasting takes place. 4. 0 conclusion in this address, i have sought to sensitize you about some of the critical issues in liquidity forecasting. i believe that the expert faculty placed at your disposal, will give you an exhaustive treatment of the subject matter. at this juncture, permit me to express our sincere appreciation to messrs simon gray and tony smith of the centre for central banking studies of the bank of england and the uk treasury department, respectively for taking up our call to facilitate this course. i would like to take the liberty to invite you to avail yourselves of this opportunity provided by this course. once more i enjoin you to feel at home here in freetown and enjoy the warmth and hospitality of our people. on this note, it is my singular honour and privilege to declare open the regional course on liquidity forecasting for monetary and fiscal management. i thank you for your attention.