øystein olsen : the conduct of monetary policy introductory statement by mr øystein olsen, 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, 19 may 2020. * * * accompanying slides of the speech. please note that the text below may differ from the actual presentation. when i appeared at the hearing before this committee this time last year, the norwegian economy was growing at a solid pace and the policy rate was on the rise. the policy rate was raised three times in 2019, from 0. 75 percent to 1. 50 percent. there was no longer any need for low interest rates to support economic activity. after several years of solid economic growth and falling unemployment, capacity utilisation was assessed to be somewhat above a normal level in 2019. inflation was close to the 2 percent target. gdp growth slowed through autumn, and towards the end of 2019 the norwegian economy was assessed to be close to the peak of the business cycle. there were prospects that the policy rate would remain close to 1. 50 percent ahead, inflation would continue to be close to the inflation target and unemployment would remain low. we envisaged that growth would slow in the years ahead, partly as a result of weaker prospects for petroleum investment. none of us at that time could have foreseen that a virus would change the picture completely and lead the norwegian and the global economy into a deep decline. chart : a historically deep decline the economic outlook has changed dramatically in a short period of time. activity in the norwegian economy has fallen abruptly owing to the coronavirus pandemic. the virus outbreak and the extensive measures taken to contain it have led to production halts and lower activity across a range of businesses. unemployment has risen to very high levels. mainland gdp is projected to fall by around 5 percent in 2020. we have not seen a contraction like this since the war years. chart : an abrupt and deep decline in the global economy the countries around us have also been severely affected. measures taken to contain the spread of the virus, combined with changes in behaviour and uncertainty about developments ahead, have resulted in substantial declines in output across economies. in early march, we expected moderate economic growth among trading partners. now a deep decline appears likely this year followed by a gradual rebound. the subsequent path of developments is, however, highly uncertain. the authorities in many countries have implemented powerful fiscal policy measures

. 10 indeed, the u. s. manufacturing sector is healthy. the recovery from the pandemic downturn has been remarkable, especially in comparison to the great recession. the sector is currently producing at 3 percent above its pre - pandemic level. and, importantly, october marked 18 consecutive months of increasing manufacturing see erik brynjolfsson, daniel rock, and chad syverson ( 2021 ), “ the productivity j - curve : how intangibles complement general purpose technologies, ” american economic journal : macroeconomics, vol. 13 ( january ), pp. 333 – 72. see paul a. david ( 1990 ), “ the dynamo and the computer : an historical perspective on the modern productivity paradox, ” american economic review, vol. 80 ( may ), pp. 355 – 61. the relationship between competition and innovation is complicated and a matter of some debate. see philippe aghion, nick bloom, richard blundell, rachel griffith, and peter howitt ( 2005 ), “ competition and innovation : an inverted - u relationship, ” quarterly journal of economics, vol. 120 ( may ), pp. 701 – 28. in addition, see the discussion of the literature in rachel griffith and john van reenen ( 2021 ), “ product market competition, creative destruction and innovation, ” cepr discussion paper no. dp16763 ( washington : center for economic and policy research, november ). see ryan decker, john haltiwanger, ron jarmin, and javier miranda ( 2014 ), “ the role of entrepreneurship in u. s. job creation and economic dynamism, ” journal of economic perspectives, vol. 28 ( summer ), pp. 3 – 24. - 9employment. if manufacturing were to return to its role as a productivity leader, productivity for the total economy would grow noticeably faster. looking ahead, productivity plays an important role in our thinking about the outlook. productivity growth raises the nation ’ s per capita income and, one hopes, the welfare of the typical household. as i mentioned earlier, productivity growth may also help lower prices. if we can make more with less, firms can lower the cost of the final product and still remain profitable. for this reason, it is heartening to see all the innovation happening in the motor vehicle industry and throughout the economy. it is hard to know exactly when all the benefits will show up, but we know the historical evidence suggests they