the government on 29 march 2001, the operational objective of monetary policy is low and stable inflation. pursuant to the regulation, norges bank ’ s mandate is as follows : “ monetary policy shall be aimed at stability in the norwegian krone ’ s national and international value, contributing to stable expectations concerning exchange rate developments. at the same time, monetary policy shall underpin fiscal policy by contributing to stable developments in output and employment. norges bank is responsible for the implementation of monetary policy. norges bank's implementation of monetary policy shall, in accordance with the first paragraph, be oriented towards low and stable inflation. the operational target of monetary policy shall be annual consumer price inflation of approximately 2. 5 per cent over time. [ … ] ” the first paragraph of the mandate sets forth its intentions. the last paragraph specifies what norges bank is required to do. the first sentence in the mandate refers to the value of the krone. stability in the internal value of the krone implies that inflation must be low and stable. low and stable inflation fosters economic growth and stability in financial and property markets. the regulation also states that monetary policy shall be aimed at stability in the norwegian krone ’ s external value, contributing to stable expectations concerning exchange rate developments. with open trade with other countries and free capital movements, we do not have the instruments to fine - tune the krone exchange rate. the krone has appreciated when economic activity has been high and there have been expectations of a wide interest rate differential. the krone has depreciated when activity has declined and the interest rate differential has narrowed. there is also a strong tendency for the krone to revert to a level that stabilises the price level in norway relative to our trading partners, measured in a common currency. 1 the conduct of monetary policy norges bank ’ s operational conduct of monetary policy shall be oriented towards low and stable inflation. norges bank operates a flexible inflation targeting regime, so that variability in output and employment and in inflation is given weight. inflation shall be 2½ per cent over time. monetary policy influences the economy with long and variable lags, and the bank must therefore be forward - looking in interest - rate setting. in the operational conduct of monetary policy in norway, the path of inflation and the real economy in the period ahead will be taken into account. we also give emphasis to predictability and transparency. normally, the interest rate is set with a view to achieving inflation of 2½

svein gjedrem : the krone exchange rate and competitiveness in the business sector address by mr svein gjedrem, governor of norges bank ( central bank of norway ), to the federation of norwegian process industries, oslo, 29 april 2004. the text below may differ slightly from the actual presentation. the address is based on the assessments presented at norges bank ’ s press conference following the executive board ’ s monetary policy meeting on 21 april, inflation report 1 / 04 and on previous speeches. the charts can be found on the norges bank ’ s website. * * * the primary objective of monetary policy is to ensure nominal stability. there were wide fluctuations in the norwegian economy in the 1970s and 1980s. economic developments were marked by high and variable inflation. inflation rose gradually and it took a long time before it fell. the absence of a nominal anchor was one of the main reasons behind these pronounced swings in the norwegian economy. with a policy of low interest rates and devaluations, inflation took root. nominal interest rates were kept at a low level even though inflation and the value of tax - deductible interest expenditure rose. frequent devaluations from 1976 were not able to prevent a decline in the manufacturing sector. on the contrary, they proved to be self - reinforcing. the wide fluctuations culminated in a credit boom in the mid - 1980s, and a rise in costs as a consequence of the spring 1986 wage settlement. a pronounced downturn and high unemployment followed at the end of the 1980s. in order to achieve nominal stability, monetary policy must provide a nominal anchor. since the second world war, there have been several monetary policy reforms in norway. in the period between 1972 and 1986, monetary policy was to a limited extent focused on stabilising the rise in prices. during this period, inflation was high and variable. consumer prices rose almost twice as much as in germany. at the same time, the value of the norwegian krone against the german mark was almost halved, contributing to high imported inflation. from the mid - 1980s, during and after the credit bubble and the cost shock, it was recognised that a substantial revision of economic policy would be necessary and that the problems created by inflation had to be taken seriously. from 1986 to 1992, norway operated a fixed exchange rate regime. the fixed exchange rate was the anchor for inflation in norway. the difference between inflation in norway and germany narrowed substantially. deteriorating competitiveness due to