15 ). figure 15 long - term us treasury bond yields and expected short - term rates ( percent ; daily ) 10 - year constant maturity treasury bond yield expected average 3 - month t - bill rate over the next 10 years 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 sources : federal reserve ; federal reserve bank of philadelphia, survey of professional forecasters. • low interest rates triggered a search for yield which, by squeezing risk premiums, tended to make financial conditions even more favourable for a broad range of borrowers. low perceived risk, abundant liquidity and credit expansion, as well as regulatory failures in some markets, helped feed the house price bubble. ex - ante real interest rates on 10 - year us government bonds fell below 2 percent in 2002, and remained there for several years. one of the consequences was an increasing search by investors − including international banks, banks of other countries and financial vehicles they controlled – for investments with higher risk - return profiles. this stimulated the supply of structured financial instruments backed mainly, although not exclusively, by home mortgages granted with loan - to - value ratios even exceeding 100 per cent, based on the false premise that house prices could only increase. in this context, a crucial role was played by financial regulation that was generally lax, and, in some market segments, non - existent. in this environment, housing finance became cheap and attractive, especially variable rate mortgages, and even more so those with teasers. for 30 - year fixed - rate conventional mortgages, rates declined to just above 5 percent in june 2003, with almost 3 percent annual inflation. housing starts jumped by the end of 2003 and the surge in housing demand spurred housing prices. the increased ability of households to borrow against their home equity was crucial in igniting the spiralling of housing demand and prices. the global housing price rise started in the late 1990s and gradually accelerated after 2000, despite the turn in the economic cycle, supported by lower interest rates. between 1996 and 2007 real house prices in the oecd area approximately doubled. although the extent of the increase differed considerably across countries, and a few, such as japan and germany were left out for particular reasons ( respectively, the earlier experience of an extremely severe boom - bust cycle and the consequences of the reunification process ), the cycle was remarkably synchronised for an asset market that is inherently local. the last part of the house price upswing coincided with a new run

svein gjedrem : a central banker ’ s comparison of the nordic countries introduction by mr svein gjedrem, governor of norges bank ( central bank of norway ), at the panel discussion of the aci nordic congress, goteborg, 24 august 2002. please note that the text below may differ slightly from the actual presentation. * * * for outsiders, it may be convenient to see the nordic region as consisting of countries with very similar characteristics. however, the countries are different in several ways. first, they differ in their relations to the eu and with respect to their monetary policy regimes. sweden, denmark and finland are members of the eu. finland is also a member of emu. the euro has replaced the markka as legal tender, and finland and the other 11 member countries of emu have a common monetary policy. denmark is in erm ii while sweden, iceland and norway have inflation targets. in norway the inflation target of 2½ per cent was adopted on 29 march 2001 and now functions as the nominal anchor for the norwegian economy. the introduction of the inflation target did not imply a significant shift in the way monetary policy was conducted. however, the introduction of the inflation target brought monetary policy in norway more in line with common practice internationally, and facilitated communication. although the approaches differ, inflation has been relatively low and stable in the nordic countries in recent years. second, the nordic countries are different in terms of industrial structure. the sector composition of the three scandinavian stock exchanges provides an illustration. the oslo stock exchange is heavily dominated by the energy sector, which is practically absent in stockholm, copenhagen and the two other nordic exchanges. norway has small traditional industries, but the it and telecom sector is comparable to the other countries ’ in relative size. the different sector composition of the stock exchanges also illustrates the potential for diversification by investing across the nordic countries. the differences in industrial structure imply that international economic developments will affect the nordic countries differently. most notably, an oil price shock will have the opposite effect in norway than in the other nordic economies. in 2001, the petroleum sector in norway accounted for around 20 per cent of total investments, 45 per cent of exports, 24 per cent of gdp and 35 per cent of central government revenues. the government net cash flow from the petroleum sector has increased in recent years. since 1995, the fiscal surplus has been invested in the government petroleum fund. the size of the fund has increased rapidly in the last few years, and