a risk that inflation will accelerate. a monetary policy objective of achieving the highest possible level of employment can therefore come into conflict with the primary objective of “ monetary stability ”. if that were to happen, the bank will give precedence to its primary objective – low and stable inflation. delivering low and stable inflation is the best contribution monetary policy can make to favourable and stable developments in the economy over time. financial stability considerations monetary policy can also contribute to high and stable output and employment by giving weight to preventing a build - up of financial imbalances. experience shows that the likelihood of a severe economic downturn increases when financial imbalances have built up. economic downturns caused by financial crises tend to be both deeper and longer than other downturns. if monetary policy helps to restrain the build - up of financial imbalances, this may also mitigate the risk of severe economic downturns further ahead. the extent to which explicit weight should be placed on financial stability in interest rate setting is state - dependent and must be based on an overall assessment of the outlook for inflation, output and employment. in many situations, financial stability considerations will pull in the same direction as the objectives of price stability and real economic stability. if the economy is booming, with prospects for high inflation and a risk of a build - up of financial imbalances, monetary policy tightening will accommodate all the considerations above. likewise, lowering the key policy rate in response to a severe downturn with increased bank losses will contribute to sustaining activity and limiting bank losses. in other situations, the different considerations will pull in opposite directions. if there are prospects that inflation will be too low amid rising debt and house prices, it may be appropriate to give weight to real economic stability considerations and bring inflation back to the target somewhat more slowly. in recent years, norges bank has kept its key policy rate somewhat higher than implied by a short - term goal of inflation and output stability would in isolation suggest. this has occurred in an environment of low global interest rates and where a build - up of financial imbalances has increased the likelihood of inflation, output and employment volatility further out. this does not mean that asset prices or debt have been given independent roles as target variables of monetary policy. the decisive factor has been the consideration of economic stability over time. a monetary policy that “ leans against the wind ” can entail costs in the form of lower demand and inflation in the short run. in the practical conduct of monetary policy

“ the purpose of norges bank is to maintain monetary stability and promote the stability of the financial system and an efficient and secure payment system ”, while the second paragraph reads : “ the bank shall otherwise contribute to high and stable output and employment ”. a well - functioning monetary system is a fundamental prerequisite for the efficient functioning of an economy. norges bank plays a key role in this context. it naturally follows that the objectives set out in the first paragraph of the objects clause are primary objectives for the bank and fully in line with the principles on which the bank already bases its activities. 1 / 8 bis central bankers'speeches trust in the stability of the value of money is the very foundation of the monetary system. in addition, households and businesses must be confident that the payment system will allow them to conduct transactions securely at all times. an efficient and stable interbank payment and settlement system also provides a necessary basis for the stability of the financial system. with financial system stability, investors can channel available capital to investments offering the highest return. norges bank also has a key role in the management of crises in the financial system. in a crisis, the bank can supply liquidity both to influence market interest rates and to stabilise the financial system. flexible inflation targeting the purpose of “ maintaining monetary stability ” sets a long - term objective for monetary policy. the day - to - day conduct of monetary policy requires a more operational target. most countries set this target in the form of a regulation or a more time - limited mandate issued by the government. the operational target is set to meet the primary objective, but is also a means of holding the central bank accountable. chart : emergence of inflation targeting the objective of monetary stability is compatible with a range of operational targets. in the past, central banks were expected to ensure that money would keep its value in precious metal. later, this was replaced by a fixed exchange rate regime whereby the currency was pegged to other currencies. various forms of fixed exchange rate regimes are still in use in many countries, but since new zealand introduced inflation targeting as a framework for monetary policy in 1990, an increasing number of countries have chosen to link monetary stability to a numerical inflation target. today, more than 30 countries have adopted some form of inflation targeting. international experience with inflation targeting has been predominantly positive. both during and after the global financial crisis, economic growth performance has been better in inflationtargeting countries. one important reason may be that a floating