norwegian business cycle diverged from that of trading partners. in the period 1975 - 1978 and 1982 - 1988, wage growth was markedly higher than wage growth among trading partners. as a result, competitiveness deteriorated sharply in internationally exposed industries, which in both cases led to a cyclical downturn with low real wage growth and high unemployment, also in sheltered industries. this is a mechanism that will occur again. public sector employees also have to pay for the imbalances. real wage growth for teachers and health sector employees was negative both at the end of the 1970s and the end of the 1980s. around the mid - 1990s these groups also benefited from stable economic growth with low inflation. annual real wage growth averaged around 3 per cent between 1996 and 1998. developments in recent years are similar to those which caused the imbalances in wage formation in the 1970s and 1980s. wage increases in this year ’ s settlement were high. wage settlements in internationally exposed sectors did not set the trend for wages. wage increases in these sectors were around 5 per cent, while they were appreciably higher in a number of sheltered industries. in the education sector, wage growth is nearing 8 per cent this year. adjusted for inflation, this is the highest level of wage growth in any single year since the early 1960s. the central and local government sectors, including the education sector, employ 1 / 3 of all employees in norway. in 2002, wage growth for these three groups combined was 6. 3 per cent. this is close to 1 percentage point higher than the average for the remaining two - thirds. in rural areas, where local government employment is an alternative to working in agriculture, the fisheries, local service production or small - scale industry, the public sector, with its nationwide agreements, is a wage trendsetter. high wage growth in the public sector will thus determine wage growth in other local sheltered enterprises. many of these industries may pass on higher labour costs to customers. wage growth in the public sector may therefore be an important source of higher inflation. public enterprises can only pass on higher labour costs to customers to a limited extent. on the other hand, the rise in costs can intensify pressures to increase central government allocations. many will probably expect the central government to pick up the bill when labour costs rise sharply. the central government budget for 2002 adhered closely to the fiscal guideline. growth in public spending from last year to this year is estimated at 7 per cent. this is considerably higher than

remarkable effect. the other winner i am equally happy to announce is richard priestley, also professor at bi. priestley has published several papers on exchange rate regimes, many on the relationship between the establishment of the euro and equity pricing across the region. the scope of his bonus - winning paper is even more global. it is titled “ the world business cycle and expected returns ”, which has been accepted for publication in the premier european finance journal : the review of finance. in this paper, priestley and co - author ilan cooper use a novel and interesting measure of the business variable, namely the ratio of capital to output. this ratio is a good predictor of return on financial indices, both equity and bond returns and credit spreads, across time and across markets. the paper by cooper and priestley demonstrate neatly a central element of modern financial economics : expected returns on financial securities vary over time, and tend to move with the business cycle. this fact is highly relevant for a long - term investor such as the fund, and is one of this conference ’ s central topics. since its inception in 1998, the mandate of the fund has prescribed a strategic fixed equity share ; at 40 percent in the initial years, increased to 60 percent some years ago. bis central bankers ’ speeches a fixed share may sound trivial. it is not. the average portfolio of all investors cannot be rebalanced. as the risk premium varies over time, equity values swing. equities are more volatile than bonds, and the equity share of the combined market portfolio of bonds and equities fluctuates substantially. rebalancing as we do implies taking on more risk just when risk is already perceived to be high. when the value of equities fall more than that of bonds, rebalancing means that we would sell bonds and buy equities. to develop a robust rebalancing strategy, we must understand why there are other, also highly competitive investors, who take the other side of these trades. we also need to understand our own edge, the comparative advantage – or disadvantage – of the size, time horizon, and governance structure of the fund. these issues are all intimately linked to questions on the research frontier of financial economics. so far, the rebalancing strategy has served the fund well. from 1998 to 2011, around 0. 5 percentage point – a considerable portion – of the total annual return can be attributed to rebalancing. we believe rebala