. a part of the answer is to make the most of the fund ’ s defining characteristics – size, liquidity and long - term horizon – to create excess return. the experience of the past 20 years shows that this is possible. as a large, long - term investor, we manage the fund responsibly. this requires active ownership. we engage in dialogue with companies worldwide in order to improve their long - term earnings and weed out companies with business models that are not sustainable. here we must also take active investment decisions. such a large fund cannot be managed passively. responsible investment requires active ownership. active management and active ownership are closely related. this interaction has huge potential. active management entails risk. to mitigate this risk, the bank ’ s executive board and investment management organisation have established a set of investment strategies. these strategies complement one another and constitute a whole. over time, they have yielded excess returns, well within the risk limits set in the bank ’ s mandate. finally, we depend on the people in the organisation to achieve our set objectives. many of our asset managers have built up unique expertise by monitoring companies closely through many years ’ work. others contribute ideas and approaches to developing new methods and analyses. still others help to make choices large and small every day to create excess returns. the employees of norges bank investment management can be proud of their expertise and their efforts on behalf of the fund, the bank and the country. i am certain that they will do their utmost to succeed even better in the years to come. thank you for your attention. 5 / 5 bis central bankers'speeches

of higher inflation, which we are addressing by increasing the interest rate. consumer price inflation is still fairly low, but capacity utilisation is now at such a high level that inflation is projected to move up gradually to 2. 5 per cent. higher interest rates will contribute to a gradual decline in capacity utilisation, thereby preventing inflation from becoming too high. in the long term, monetary policy cannot influence real economic variables such as output and employment ; it can only influence nominal variables such as inflation, the nominal interest rate and the nominal exchange rate. when monetary policy serves as an anchor for inflation expectations, it allows the interplay between monetary policy and other components of the economy to function. a good result can be achieved if the social partners take the role of " leader " and the central bank the role of " follower ". wage growth can then be determined in the knowledge of the monetary policy response. flexible inflation targeting provides a fixed framework for monetary policy and gives a clear indication of how the central bank is to respond in different situations. the " leader " – the social partners – can internalise the monetary policy response and take the " follower ’ s " – norges bank ’ s – response to their actions into account. this approach is most relevant when wage setting is centralised. a number of studies2 have shown that countries with a relatively high degree of centralisation and coordination, such as norway, can achieve relatively low unemployment. when wage - setting is decentralised, monetary policy will instead influence wage growth via market mechanisms, by stabilising aggregate demand for goods, services and labour. monetary policy that is flexibly oriented towards low and stable inflation will function well whether wages are set at the central, local or individual level 2. in the initial period after the introduction of the inflation target in 2001, it appeared that the social partners had not yet internalised the response pattern ensuing from the monetary policy mandate. we are now well into a cyclical phase with very high capacity utilisation and low unemployment. in this situation, there may be a risk that wage growth will again accelerate. on the other hand, the experience gained by the social partners that large pay rises push up interest rates may have the effect of curbing pay increases. in local wage negotiations at enterprise level, competition, the supply of foreign labour and the possibility of outsourcing or relocating activities may dampen the impact. low and stable inflation should not be taken for granted. norway ’ s and other countries ’