svein gjedrem : the conduct of monetary policy introductory statement by mr svein gjedrem, governor of norges bank ( central bank of norway ), at the hearing before the standing committee on finance and economic affairs of the storting ( norwegian parliament ), oslo, 23 may 2005. the charts in pdf - format can be found on the norges bank ’ s website. please note that the text below may differ slightly from the actual presentation. the statement is based, among other things, on norges bank ’ s annual report for 2004, inflation report 1 / 2005 and the assessments published after the monetary policy meeting of the executive board on 20 april. * * * i would like to take this opportunity to thank the storting for again inviting me to appear before this committee on behalf of norges bank in order to report and answer questions on monetary policy in connection with the storting ’ s deliberations on the government ’ s credit report. the introductory statement is based on the bank ’ s annual report, but is also updated based on the executive board ’ s assessments for the period to the preceding monetary policy meeting. flexible inflation targeting monetary policy in norway is oriented towards low and stable inflation. this is the most important contribution monetary policy can make to sound economic developments in the long term. the inflation target provides enterprises and households with an anchor for future inflation expectations. when there is confidence in the inflation target, monetary policy can contribute to stabilising developments in output and employment. norges bank operates a flexible inflation targeting regime so that variability in inflation and variability in output and employment are given weight when we set the interest rate. monetary policy influences the economy with long and variable lags. norges bank sets the interest rate with a view to stabilising inflation at the target within a reasonable time horizon, normally 1 - 3 years. the relevant horizon will depend on disturbances to which the economy is exposed and how they affect the path for inflation and the real economy ahead. we have increased the transparency surrounding the basis for monetary policy decisions in recent years. norges bank ’ s statements following its monetary policy meetings, press conferences, the inflation report and speeches provide an account of economic developments that are of importance to the executive board ’ s assessments and interest rate decisions. all publications are available on our website. underlying each interest rate decision is a monetary policy strategy drawn up by the executive board every four months. the strategy is published directly after it has been approved

the petroleum sector to record - high levels. the level of investment in this sector in 2014 was as high as total investment in domestic non - oil industries. the positive spillovers to the oil service industry and other business sectors have been substantial, in particular through the past decade. norwegian employment has remained high and unemployment low, even when the financial crisis hit in 2008. it is estimated that 1 out of 9 jobs in norway are linked to the oil industry. bis central bankers ’ speeches fiscal rule it was established at an early stage that norway ’ s oil and gas resources belong to the norwegian people. the tax system for the petroleum industry was designed to make sure that the bulk of the large revenues, the economic rent from the petroleum sector, would accrue to the state. petroleum companies pay a surtax of 51 percent of profits, on top of the normal corporate tax rate of 27 percent. the government also has direct ownership shares in the most profitable oil fields. however, policymakers ’ handling of norway ’ s newly discovered petroleum wealth got off to a rather bumpy start. during the first 25 years of oil production, norway experienced two deep recessions. both downturns were rooted in hugely optimistic income expectations. in the 1970s, the public sector was the big spender, and the government had to tighten policy later on. in the 1980s, a credit - fuelled consumption boom in the private sector led to necessary cut - backs after the oil price plunge in 1986. these two episodes of turbulence made clear how vulnerable a small open economy is to terms of trade disturbances, as well as to short - termism and exuberant expectations. to prevent the same mistakes from being made again, fiscal institutions were set up in the 1990s. among the most important of these are the oil fund and the fiscal rule. chart : the fund mechanism the norwegian parliament passed the act relating to the oil fund in 1990. under the act, the net fiscal surplus, including oil revenues, is transferred to the fund, and invested in international markets. a main purpose of the fund mechanism is to make the actual spending of oil revenues transparent. towards the end of the 1990s, inflows to the oil fund increased, and there were expectations of considerable petroleum revenues in the future. there was increasing political pressure to spend more. in a climate of high inflows and even higher expectations, it was demanding to restrain fiscal spending. at the same time, it was clear that future pension obligations would be substantial