wealth to financial assets has been completed, the objective will still be to restrict withdrawals so that the real value of the fund ’ s capital is maintained - in principle, indefinitely. the petroleum fund functions as a buffer against movements in the krone exchange rate when oil prices vary. the cash flow from an increase in oil prices will accrue to the fund and be invested abroad. in this way, the fund contributes to limiting an appreciation of the krone and maintaining a stable exchange rate. at times, it seems that participants in the foreign exchange market underestimate the petroleum fund ’ s buffer mechanism. since summer 2004, the krone, measured by the trade - weighted exchange rate index ( twi ), has appreciated by about 5 per cent. the chart shows the exchange rate and the price of oil since 1999. there does not appear to be any clear relationship between the nominal exchange rate and oil prices over time. the krone has appreciated in periods with high oil prices, but the same has occurred when oil prices have been low. the correlation between the oil price and the krone exchange rate has varied over time. since inflation targeting was introduced in march 2001, the average correlation has in fact been zero. this result is worth noting and indicates that the export of capital via the petroleum fund has protected the nominal exchange rate from price fluctuations in the oil market. therefore, there is cause for some optimism concerning the possibility of shielding the mainland economy from the effects of swings in oil prices. in the long run, however, petroleum revenues and their use will affect the level of costs in norway. an increase in oil prices may generate expectations of higher use of petroleum revenues in the future, particularly if high oil prices are expected to persist. such expectations may exert appreciation pressures on the krone. it may also generate expectations of higher returns in the norwegian stock market than in foreign markets, which also can and has contributed to an appreciation of the krone. our assessment is that developments in oil prices and an increased cash flow have been responsible for the appreciation of the krone since the spring of 2004. we are approaching a peak in petroleum production in norway and must expect a substantial reduction in the next decades. in addition, there is considerable uncertainty associated with future petroleum production. in recent years, there has been a tendency to overestimate projections for production a couple of years ahead. it is especially demanding to estimate production for the many large fields that have reached maximum capacity. the fiscal rule provides

has contracted 300 consultants based in india to work on the ormen lange project in north - west norway. an increase in the use of these short - term contracts will appear as an increase in norway ’ s service imports, and contributes to increasing the supply of goods and services without drawing on domestic resources. protectionist measures may dampen the impact on the norwegian economy of an increased supply of labour from the new eu member states. the transitional rules from 1 may last year stipulate that foreign workers shall have norwegian wages and working conditions. at the same time, resources and appropriations for the supervision and control of foreign workers ’ wages and working conditions have been increased. as a result, foreign suppliers of services are losing much of their competitive edge in relation to norwegian enterprises. the latest directorate of labour figures show that seasonally adjusted unemployment was 3. 4 per cent in september. this is in line with the developments we envisaged in the june inflation report ( 2 / 05 ). statistics norway ’ s labour force survey ( lfs ) presents a somewhat weaker picture of unemployment. registered unemployment is on the decline in all regions. north - west norway is no exception ; this region has experienced a marked fall in the number of unemployed. manufacturing is important for employment in north - west norway. the share of employment in manufacturing in this region is higher than the national average. activity is to a great extent export - oriented, as in the fishing, furniture and processing industries. developments in the krone exchange rate are therefore important for north - west norway. in this context, fiscal policy and the use of petroleum revenues play a key role. north - west norway is, perhaps more than any other region, dependent on the fiscal rule being followed. with the current level of oil and gas production, shipyard order books are full. large - scale projects such as ormen lange also have local spillover effects. the project provides contracts for subcontractors, and has also resulted in improvements in infrastructure in local areas. information from norges bank ’ s regional network is important for norges bank ’ s analysis of the norwegian economy. information about the state of the norwegian economy is available earlier than information provided by official statistics, and it is useful to have closer contact with the labour market and business and industry throughout the country. according to the latest reports from the regional network, the situation in region north - west is very favourable. enterprises in the network report that employment is high and profitability is rising in tandem with