provide you with a useful tool to further improve both the subject and the institutions. in my lecture today, i will provide some insight into how norges bank makes use of economic models and touch upon the issues you will have the opportunity to explore further in the course of your studies. inflation is a persistent rise in the general price level or, in other words, a fall in the value of money. when inflation is high, it is as a rule also variable. this generates uncertainty for households and firms. it is costly to bring high inflation under control. however, inflation should not become too low either. deflation is often synonymous with recession. central banks have always had a natural responsibility for stabilising the value of money. schweigaard was concerned with stabilising the krone ’ s value in silver terms. since that time, norway has operated various regimes with the aim of stabilising the value of money. a silver standard for the krone was followed by the gold standard. later norges bank sought to stabilise the krone ’ s value against other currencies, first the pound sterling and thereafter the us dollar. for a long period after the war, various fixed exchange rate systems were introduced under international agreements, which were subsequently abandoned in favour of slagstad, rune ( 1998 ), “ de nasjonale strateger ” ( national strategists ), pax aubert, l. m. b. ( 1883 ), “ anton martin schweigaards barndom og ungdom ” ( anton martin schweigaard ’ s early years ), p. t. mallings boghandels forlag bis central bankers ’ speeches a more unilateral stabilisation of the krone against various currencies. since 2001, the objective of monetary policy has been low and stable inflation. rather than stabilising the value of money indirectly through an exchange rate target, we now aim to attain a more direct objective which we believe monetary policy can achieve over time. the operational target of monetary policy is annual consumer price inflation of close to 2½ per cent over time. monetary policy shall also contribute to stabilising output and employment. in this respect, inflation targeting is flexible. the inflation target is symmetrical – it is just as important to avoid an inflation rate that is too low as an inflation rate that is too high. the inflation target provides economic agents with an anchor for inflation expectations. decisions

players tend to be good for a functioning market. we should keep that in mind. there is no need – or mandate – for supervisors to interfere with these market forces. what we can and should do is to finalise the reform progress that began in 2008, and to do so soon. and we will make sure that banks are put under close supervisory scrutiny. 3 / 5 bis central bankers'speeches 4 what role for bank mergers & acquisitions? so far, i have answered the question as to what banks and policymakers should do. that leads to the question – certainly in this room, at least : what role can mergers & acquisitions play? in the last few weeks, some have argued in public debate that competition in the banking sector is too high, which, in turn results in low profitability of banks. quite often this was then linked to the number of banks being too high. but as i have pointed out in the past, the number of businesses in a market is not a problem per se. 2 nevertheless, i agree at least in part with the conclusion that mergers & acquisitions might be appropriate for some institutions. and, as i outlined earlier, we have seen that adjustment in the euro area has already progressed in terms of the number of banks, employees, branches and balance sheet volumes. thus, the question that arises is : how much more room is there for viable mergers & acquisitions? before i answer this question, let ’ s look at how successful banks were in the past when merging. generally speaking, when the businesses of two organisations are combined, you would expect higher cost efficiency from economies of scale on the one hand and income synergies from cross - selling and complementary business lines on the other. what we see in europe, and also in germany, is that on average the potential is less than that typically hoped for. the track record for mergers & acquisitions in the banking sector is mediocre. 3 on average, we see that banks were only modestly capable of achieving the desired cost reductions and higher profitability. that, of course, does not mean that mergers are bad per se, but rather that it depends on the merits of each individual case. are the institutions a good match? are gains in operational efficiency possible? will the increased size even result in less efficiency due to governance problems? successful mergers or acquisitions depend on whether synergies are viable. ultimately, it ’ s about careful decision - making with the long - term strategy in mind – but that also