in the economy. we illustrate the uncertainty by fan charts. growth in the norwegian economy has been higher than we assumed a year ago. this reflects a large supply of labour from other countries and high productivity growth, but also increased use of domestic labour and other resources. it is likely that capacity utilisation will have to decline to prevent inflation from becoming too high. see norges bank watch 2008 for a critical view on measures on capacity utilisation. unemployment has declined considerably and is now historically low. the increase in employment has been accompanied by a decrease in wage - earners ’ share of corporate earnings. developments must be viewed in the context of the many positive factors that have been at work in the business sector. the impact of a number of these factors may now be diminishing. it is not likely that the improvement in norway ’ s terms of trade will simply continue. productivity growth seems to be slowing and wage growth is picking up. wage - earners ’ share of value added is therefore rising again, and this will probably curb labour demand ahead. a number of other factors may also contribute to reducing capacity utilisation even though petroleum investment remains high and public expenditure is growing at a fast pace. there are signs of a cooling housing market throughout the country. house price inflation peaked about a year ago. for norway as a whole, house prices have remained approximately unchanged over the past twelve months. there are nevertheless regional differences in house prices. house prices are rising fastest in rogaland, and falling fastest in hordaland and the inland regions. housing investment gradually slackened through 2007, reflecting higher interest rates, rising inventories of unsold homes and increased construction costs. several large residential construction projects have now been shelved. we also expect commercial property starts to show a gradual decline. developments in capacity utilisation abroad have an impact on capacity utilisation at home. after several years of strong growth in the world economy, growth is slowing in a number of countries. growth in the us seems to have come to a halt, and there are fears of a downturn. growth is also slackening in many western european countries, but emerging economies such as china and india are still growing at a brisk pace. inflation is picking up in many countries due to rising food and energy prices. central bank key rates have been cut in the us and the uk to address deteriorating growth prospects. in the euro area the interest rate has been kept unchanged, while the swedish central bank has

critical in these circumstances is the occurrence of a capital flight, which may be triggered by a loss of market confidence in a country ’ s economic policy management resulting from an inflation or recession in that country. in order to prevent this from occurring in japan today, it is essential to strengthen the foundations of the economic recovery and to achieve noninflationary, sustainable growth. in this connection, some argue that the revision of the foreign exchange and foreign trade control law, together with the low interest rates, may accelerate capital outflow. the bank intends to monitor carefully the effects of the revision on the markets. however, as i have just explained, the bank believes that there is little possibility of a disruptive capital outflow occurring simply as a result of the interest rate differentials between japan and abroad. rather, a more serious problem to consider would be the emergence of a “ transaction flight. ” should market participants decide for certain reasons that overseas markets are more attractive and beneficial to the conducting of transactions, even financial and capital transactions between residents, which have conventionally been conducted in japan — for example, securities transactions between domestic firms and households — may shift overseas. although this will not induce an outflow of capital, transactions will be carried out abroad and the subsequent business opportunities will be transferred overseas. should this trend continue, it might lead to a hollowing out of japan ’ s financial markets. this is why the “ big bang ” deregulation package must be implemented apace with the revision of the foreign exchange and foreign trade control law, to enhance the attractiveness of domestic financial markets and services. iii. the new framework of monetary policy under the new bank of japan law to summarize what i have said so far, the bank of japan is managing monetary policy with a view to placing the japanese economy on a path of noninflationary, sustainable growth. while this has always been the objective of monetary policy under the current bank of japan law, it is stipulated more explicitly by the new law, which will come into effect on april 1, 1998. various revisions have also been incorporated in the new law to ensure the achievement of this objective. i would, therefore, like to discuss the new framework of monetary policy under the new bank of japan law and how we intend to make use of the new framework, firstly with regard to the objectives, secondly the instruments, and finally the management of monetary policy, including the decision - making procedures. a. monetary policy objectives 1. price