##preciation of the krona and large contractual wage increases. we know now that monetary policy achieved good results in its response to this situation. the response consisted of interest rate hikes and signalling of further ones to come, but also of more active use of other policy instruments such as foreign exchange market intervention and, later, the special reserve requirement on capital inflows into the bond market and high - yielding deposits. monetary policy was successful in bringing inflation — and thereafter, inflation expectations — back to the target after 2012, without sacrifice costs in terms of employment furthermore, the use of new policy instruments helped ensure that the exchange rate of the krona was countercyclical rather than procyclical, as it had been to some degree before the crisis. inflation remained close to the target for about five years. when the banks failed in autumn 2008, new banks were established virtually overnight. these banks received deposits in iceland and matching assets, and became a new channel for domestic payment intermediation. there was hardly a hiccup in domestic payment intermediation, which has to be considered quite a feat. as i mentioned earlier, the task of recapitalising the banks and finalising the new - bank - old - bank split remained. it was decided that the old banks should take an equity stake in two of the new ones. to begin with, there were sizeable imbalances in the banks ’ balance sheets, including foreign exchange imbalances, and non - performing loan ratios were very high. as a result of various measures and the economic recovery, the imbalances subsided and non - performing loan ratios fell rapidly from 2011 onwards. since 2015, they have been relatively low in historical context. the banks ’ capital adequacy ratios increased, both for these same reasons and because the financial supervisory authority prohibited dividend payments without explicit approval during the banks ’ first years of operation and the capital controls made dividend payments to foreign creditors less feasible. at the same time, the regulatory framework for the banks ’ operations was improved significantly. now we have a banking system that primarily serves domestic households and businesses and, in terms of total assets relative to gdp, is about 15 % of its precrisis size. as can be seen in their high capital adequacy ratios and sound liquidity position, the banks are quite resilient. their capital ratios have fallen in recent years as a result of dividend payments, and it can be said that there was

svein gjedrem : monetary policy in norway opening remarks by mr svein gjedrem, governor of the norges bank, to norges bank workshop on “ the conduct of monetary policy in open economies ”, held in oslo, on 26 - 27 october 2000. * * * introduction i am happy to welcome you to this workshop on “ the conduct of monetary policy in open economies ”. the workshop brings together researchers and practitioners of monetary policy from a wide variety of countries. the aim is to stimulate exchanges both across countries and between researchers and monetary policymakers on a topic of common interest. research on monetary policy is an international field. we thus find it tremendously useful to be a part of an international network of researchers and practitioners concerned with monetary policymaking. contact across central banks does represent an important source of inspiration to the policy discussions in norges bank. norwegian monetary policy the papers presented at this workshop address topics that are highly relevant to monetary policy in general and norwegian monetary policy in particular. some of you may be familiar with the norwegian system. for others it may be unknown that norway has a monetary policy regime that is unique in an international context : it is a system of neither a fixed exchange rate nor an inflation target. let me explain in more detail : the political authorities formulate norges bank ’ s mandate for the conduct of monetary policy. the exchange rate regulation of 6 may 1994 states that monetary policy in norway should be aimed at maintaining a stable exchange rate in relation to european currencies over time. norges bank has defined “ european currencies ” as the euro. what we mean by a “ stable exchange rate …. over time ” needs to be made more precise. the krone exchange rate has fluctuated in recent years, in spite of norges bank ’ s active use of instruments, indicating that norges bank cannot fine - tune movements in the krone exchange rate. thus, in its use of the interest rate norges bank focuses on the fundamental preconditions for stability of the krone exchange rate over time. empirical work on the norwegian economy suggests that there is mean reversion in the real exchange rate. this implies that higher inflation in norway than among its trading partners tends to be followed by a nominal exchange rate depreciation. thus, in order to stabilise the nominal exchange rate against the euro, monetary policy instruments must be oriented towards bringing inflation down to the level aimed at by the eurosystem. however