svein gjedrem : management of the government pension fund – global 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, 29 april 2009. please note that the text below may differ slightly from the actual presentation. * * * i would like to thank the committee for this opportunity to report on norges bank ’ s investment management in connection with the storting ’ s deliberations on the government report on the management of the government pension fund – global in 2008. on behalf of the government, the ministry of finance has delegated the responsibility for the operational management of the government pension fund – global to norges bank. the management mandate is specified in regulations and supplementary guidelines laid down by the ministry. a management agreement has also been entered into. this model promotes a clear division of responsibilities, transparency and professionalism. norges bank ’ s supervisory council – appointed by the storting – supervises the bank ’ s activities to ensure compliance with the rules and approves the bank ’ s budget and accounts. in accordance with the current norges bank act, the supervisory council organises the audit of norges bank, appoints the central bank auditor and lays down audit instructions. an agreement was entered into, following a tender process, with the auditing firm deloitte as on financial auditing of the fund with effect from the 2007 accounting year. deloitte and central bank audit submit a joint auditor ’ s report on the annual financial reporting for the fund. the government has submitted a draft bill recommending that the supervisory council should appoint an external auditor. this would be in line with international developments and best practice in this field. the executive board is norges bank ’ s executive authority. the executive board has increased its oversight of investment management in recent years. in 2006, an advisory board was set up to support the executive board in the field of investment management. the board comprises four experts with extensive experience from large funds and institutions managing equities, fixed income instruments and other assets. previously, central bank audit was also responsible for norges bank ’ s internal auditing. when deloitte was made responsible for the financial auditing of the fund ’ s accounts, the executive board ’ s audit committee and an internal audit unit were also established. the audit committee comprises three of the executive

efficient and adjusting their consumption habits in other ways. businesses responded by designing and purchasing capital goods that were more energy efficient and by redesigning production processes in ways that used less energy. one measure of these changes in energy intensity is the ratio of energy use to real gdp, which has fallen more than half since the mid - 1970s. econometric evidence suggests, however, that the pass - through of energy prices to core inflation has dropped by more than would be implied by the decline in energy intensity. in particular, we often look at forecasting equations for core inflation that include a term for the price of energy, weighted by a measure of energy intensity. using data for years preceding 1981, the pass - through of energy prices to core prices is large and statistically significant. in the period since 1981, the evidence of passthrough of energy prices to core inflation is more limited. because the energy - price term in these models already controls for the decline in energy intensity, this result suggests that other factors also are restraining the pass - through of energy prices to core inflation. although many factors could have led to these results, a likely explanation is that inflation expectations have become better anchored. in the 1970s, monetary policy unfortunately allowed large increases in energy prices to have a persistent effect on inflation, a policy that undercut the fed's credibility and caused long - run inflation expectations to be more volatile. since that time, however, the federal reserve has been more aggressive in fighting all sources of inflationary pressures, including energy price changes. this effort appears to have paid off not only in low and stable inflation but also in a reduction in the sensitivity of long - run inflation expectations to energy prices. the reduced sensitivity is evidenced by how little movement has appeared in survey measures in response to the rise in energy prices over the past two years. this same tendency can be seen in longer - horizon measures of inflation compensation derived from a comparison of yields on nominal treasury securities and those on treasury inflation - protected securities ( tips ), which are indexed to a measure of price change. specifically, for the period five to ten years ahead, the tips - based measure of inflation compensation has remained well anchored in recent quarters. moreover, econometric evidence suggests that since early 2004, energy prices have had only a modest effect on tips - based inflation compensation at relatively longer horizons. because inflation - indexed securities were not issued in the 1970s and early 1980s, we cannot know for sure how these recent effects differ from those that