of lower oil supplies, this contributed to a strong krone in 2002. as we reduced interest rates, the krone depreciated considerably. the weakening of the krone came to a halt in winter 2004. again we started seeing signs of a stronger krone. at the same time, inflation remained low. we therefore placed emphasis on interest rate developments in other countries, and in may 2004 norges bank thus stated : “ the inflation outlook in norway implies that norway should not be the frontrunner when other countries increase interest rates. ” 3 at the monetary policy meetings between september 2004 and february 2005, after key rates had been raised in several other counties, the formulation was changed to the following : ” that we should lag behind other countries in adjusting interest rates to a more normal level. ” 4 see norges bank press release of 26 may 2004. see press releases following the monetary policy meetings in the period between 22 september and 2 february 2005. in february, we no longer used this formulation. the background for this is that central banks in other countries such as the us, canada, uk, australia, new zealand and switzerland had raised their key rates. our closest neighbouring countries – sweden and the euro - area countries – and japan have left their key rates unchanged. on average, the key rates among our trading partners have increased by 0. 3 percentage point during this business cycle. after reducing the key rate to 1. 75 per cent, we indicated that the uncertainty associated with previous monetary policy easing and the unusually low interest rate implied that we should be cautious with regard to further interest rate reductions. at the same time, the prospect of continued low inflation for a period ahead implied that wide deviations from projected economic developments would be required before the interest rate should be increased. economic developments in the latter half of 2004 were broadly in line with expectations. the interest rate was left unchanged in line with our statements. we gradually experienced that the monetary policy easing was effective. the uncertainty diminished. the krone exchange rate the first signs of the effects of the interest rate cuts appeared in the foreign exchange market. the interest rate differential against other countries narrowed. it became more attractive to borrow and less profitable to invest in the norwegian krone. the movement in the krone exchange rate was reversed and the krone depreciated through 2003 and into 2004. the depreciation of the krone contributed to restraining the fall in prices for imported goods. the effect occurred gradually. higher prices for oil

the age group 55 – 64 and people with a physical disability which reduces their capacity to work. bis central bankers ’ speeches themself outside of the labour market suffers not only personal loss and a feeling of isolation, they also find that their skills become outdated after a while, which makes it more difficult to get a new job. a high rate of unemployment over a long period of time can become entrenched and requires a very large demand for labour so that the long - term unemployed can find work. one says that unemployment becomes persistent. the longer unemployment has been high, the more difficult it is, the longer it takes and the larger the labour demand that is needed to bring down unemployment. the fact that unemployment has been high for a long time and that long - term unemployment has increased, is also an argument now for a more, rather than a less, expansionary monetary policy. temporarily high inflation is needed to reduce unemployment one consequence of high unemployment over a long period of time and of unemployment tending to become entrenched at higher rates, is that inflation will be higher for a given rate of unemployment. this means that a sufficiently large demand for labour to bring down the high unemployment towards a long - run sustainable rate will lead to higher inflation than normal for a period of time. it is therefore important to allow inflation to overshoot the target for a number of years. this would be a necessary cost that should be weighed against the gain of bringing down unemployment. as inflation on average has fallen below the target, an inflation rate above the target would at present also have the advantage that average inflation over a long period would come closer to the target, something that would contribute to avoiding the unnecessarily high average unemployment that earlier policies have caused. according to prospera ’ s surveys, inflation expectations have stabilised at 2 per cent from 1997, despite average inflation being lower. inflation expectations would thus probably be stable even if inflation were to overshoot the target for a period of time. summary : monetary policy too tight my conclusion is that monetary policy in sweden is and has been too tight. real short interest rates are much higher in sweden than in the euro area, the united kingdom and the united states from 2010 onwards, despite the fact that inflation in sweden is significantly lower than in these economies and it is now well below the target at the same time as unemployment is as high as, or higher than, in the united kingdom and the united states. the cost of the tight monetary