northern rock shine towards us. we are indeed witnessing crises at banks in neighbouring countries. yngvar ustvedt ( 1994 ) “ henrik wergeland – en biografi ”, gyldendal norsk forlag a / s. source : www. dokpro. uio. no. text from “ henrik wergeland – samlede skrifter ”, ed. herman jæger, didrik arup seip, halvdan koht and einar høigard, published by steenske publishers, 1918 - 1940. poem translated by anne born, published in " the army of truth ", the university of wisconsin press. the turmoil spread to money and credit markets in august. few knew who was exposed to losses, and banks, funds and financial establishments started to question counterparties ’ financial situation, and held on to their money. this resulted in a surge in banks ’ premia on short - term interbank rates. moreover, banks had to bring back on their books loans from companies they had established, which further reduced their capacity and willingness to provide new loans. several large foreign banks have received capital infusions from sovereign - wealth funds in the middle east and asia to bolster their financial strength. what began as isolated losses in a small segment of the us home mortgage market led to a confidence crisis, which spread to money and credit markets in many countries in autumn 2007. in the us, there is a risk that the losses will increase in other segments of the property market and on ordinary consumer and business credit. many of the new financial instruments which were forged to diversify risk have proved to be non - viable. it is now difficult for many companies to raise new capital or procure long - term funding. there are also signs that prices and activity in property markets have reversed and are falling in many european countries. around the turn of the year, doubts were raised as to the financial strength of some us banks. the new year was ushered in amid fears of a setback in the us and a sharp decline in global equity prices. so far this year, the market capitalisation of the oslo stock exchange has declined by more than 15 per cent, or more than nok 300 billion. when the interbank market seized up, many central banks injected extra liquidity. in periods, norges bank has also provided additional loans to banks. this has reduced swings in interbank rates. norwegian banks borrow dollars short in

budgetary limits, be more targeted when groups or sectors are hit especially hard. economic stability also depends on a well - functioning wage determination process. wage determination in norway is highly coordinated. compared with in the 1970s and 1980s, the social partners today take greater account of competitiveness and employment. this process enables wages to adjust more quickly to cyclical shifts and contributes to keeping unemployment low. norges bank analyses have found that real wage flexibility, measured as the correlation between real wage growth and unemployment, has been stronger in norway than in most other countries, as shown in the chart ( chart 4 ). 5 chart 4 real wages are flexible fall in real wages in response to higher unemployment norway new zealand uk denmark germany france us sweden average of canada 23 countries source : norges bank 5. the results are based on an estimated real wage relation for a sample of oecd countries, inspired by the earlier analysis of olivier blanchard and lawrence f. katz ( 1999 ). " wage dynamics : reconciling theory and evidence. " american economic review, 89 ( 2 ). in the estimated relation, real wages depend on inflation surprises, productivity changes, unemployment and the labour share of income. the latter captures the fact that real wages often rise ( fall ) whenever real wages are low ( high ) relative to productivity. the result that shows a high degree of real wage flexibility in norway is in line with other earlier studies. see, eg, miquel clar, christian dreger and raul ramos ( 2007 ). “ wage flexibility and labour market institutions : a meta - analysis ”. discussion paper no. 2582, the institute for the study of labor ( iza ). norges bank economic perspectives 2023 real wage flexibility lessens the risk of wage price spirals. this also reduces the need to tighten monetary policy in response to a cost shock than would otherwise be the case. we can bring down inflation while avoiding a substantial increase in unemployment. but wage determination alone will not ensure low and stable inflation. that is the job of monetary policy, in norway too. if the foreign exchange market is not confident that monetary policy will be tightened when inflation rises, the krone may depreciate. 6 a weaker krone pushes up imported inflation. a weaker krone may also drive up wage growth, because the manufacturing sector ’ s wage capacity improves. 7 price and wage inflation can become self - reinforcing. over the past three decades, low and stable inflation has been the