stronger then expected every year in this period. at the same time, inflation was moderate and unemployment declined. many observers attribute the prolonged period of strong growth to the new economy, which features three main aspects : • the labour market had become more flexible. while earlier experience implied an acceleration in the rate of increase in wages and prices at an unemployment rate of six per cent, unemployment fell to four per cent without triggering higher inflation. • productivity growth increased in both the it sector and in other industries. the forecasts for the annual growth potential of the us economy were revised up substantially to around 4 per cent. • equity prices for technology stocks advanced sharply, with more than a sixfold increase in the nasdaq index from the beginning of 1995 to the peak in march 2000. strong productivity growth and low wage growth led to a sharp increase in corporate profitability. expectations of a continued rise in profits spurred sharp growth in investment. at the same time, advancing equity prices boosted household wealth. households could reduce their current saving and still increase wealth, allowing them to use a growing share of income for consumption. but imbalances heightened. the fall in the household saving ratio was based on gains in the stock market, which after a time reflected unrealistic expectations of future earnings. corporate debt increased sharply and current account deficits grew larger. in spring last year, equity prices declined. the nasdaq index showed a particularly strong decline. the index continued to fall through autumn and winter, with the overall decline nearing 60 per cent. the more broad - based stock indices have also shown a decline, albeit a more moderate one. growth has been expected to slow this year for some time. in spite of this, the turnaround in the us economy was surprisingly strong and came faster than expected. consumer and business confidence indicators have shown a marked fall. the federal reserve has sought to counter the downturn. interest rates were lowered by 1 percentage point in january. the government has announced substantial tax cuts. this may moderate the downturn, but hardly bring it to a halt. consolidation in the household and business sector may imply lower consumption and investment for a period. in 2001, we expect the us economy to expand by less than half the rate recorded last year. growth in the japanese economy is also sluggish, but the downturn in japan has continued for ten years. at the beginning of the 1990s the financial bubble burst, following a sharp increase in stock and property values in the preceding years. the

. when there are prospects of moderate economic activity, low wage growth and low inflation, norges bank will reduce the interest rate. this will normally result in a depreciation of the krone. prices for imported goods and services will increase. a weaker krone strengthens the competitiveness of norwegian enterprises and indirectly leads to higher output, employment and inflation. themes in foreign exchange markets shift. in periods, investor focus on stock returns feeds through to exchange rate movements. during periods of political and economic unrest, investors may choose individual currencies as a safe haven - often the swiss franc. in autumn 2002, the norwegian krone was probably also perceived as a safe haven. in addition, oil prices rose as a result of the uncertainty associated with the war in iraq. in autumn 2003, the krone showed a tendency to appreciate against the euro. this partly reflected lowered market expectations concerning an interest rate increase abroad and expectations that interest rates might rise earlier in norway than in other countries. at the same time, the euro appreciated in relation to other currencies. changes in the krone resulted in an unintended tightening of monetary policy. this trend was reversed in december owing to low inflation figures and a reduction in interest rates. the interest rate reduction was probably of considerable importance as it eliminated the excess return on nok investments. the krone has appreciated again in the last couple of months. the appreciation of the krone, if it persists, may curb inflation one to two years ahead. past experience shows that the krone is at times heavily influenced by developments in the interest rate differential between norway and other countries. this is given weight in interest - rate setting. however, as mentioned, themes in foreign exchange markets shift, and norges bank does not have instruments to fine - tune the exchange rate. normally, norges bank will not intervene in the foreign exchange market in order to influence the exchange rate. exchange market intervention, irrespective of whether foreign exchange is bought or sold, is not an appropriate instrument for influencing the krone over a longer period. we do not wish to act in a way that may trigger a game situation in the foreign exchange market. foreign exchange intervention rather than a change in the interest rate may give ambiguous signals to foreign exchange operators and a game situation may arise. however, interventions may be appropriate if the krone deviates substantially from the level that the bank judges to be reasonable in relation to fundamentals, and if exchange rate developments