. in some countries, the bill to be paid is substantial. in their prize - winning work, kydland and prescott raised the question of discretion versus policy rules. today, we have perhaps opted for “ both, please ”. an economic policy that is conducted blindly according to a rule, or only oriented towards solving day - to - day problems, can have adverse effects. report no 29 from 2001 attempted to reconcile the gains brought by a commitment to more long - term operational objectives with the need for a flexible approach to macroeconomic management. the monetary policy framework provides for flexibility in inflation targeting. when drawing up economic policy, a general lesson is that responsibility must be placed where appropriate. monetary policy shall be oriented towards low and stable inflation. the interest rate must not be overburdened with many objectives, but can contribute to stabilising fluctuations in the economy. the policy for financial stability must not seek to take over the risk from banks and other financial institutions, but identify the risks to which they are exposed. bis central bankers ’ speeches the past ten years have been a golden period for the norwegian economy, probably owing to a combination of skill and luck. oil revenues have given us considerable benefits. but the wealth must also be managed in a sound manner. we will encounter new challenges. we cannot take for granted that these favourable circumstances will persist, which makes it all the more important to adhere to economic policy guidelines that are based on the principles of long - termism and credibility. this provides a sound basis for navigating through future rough waters. history does not repeat itself. but the pendulum will swing back and forth, come what may. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches

had a dampening impact on growth. moderate wage growth in recent years has been accompanied by a strong cyclical upturn. it appears that wage growth will be somewhat higher in 2006 than in 2005, but not higher than expected. employment growth was lower over a long period compared with the cyclical upturns in the 1980s and 1990s. during the first phase of the upturn, output growth was largely attributable to a sharp increase in person - hours worked. this partly reflected a marked increase in average working hours when sickness absence declined in 2004. higher activity did not therefore result in substantial labour market tightening. additional labour inflows following the enlargement of the eu and the eea in 2004 also contributed to increasing potential output. a substantial share of inward labour migration is accounted for by foreign companies with contracts in norway. labour inflows from the new eu member states still appear to be growing rapidly, with the construction industry absorbing a particularly large share. on the other hand, a rise in sickness absence and the number of persons on disability benefits are pushing down potential output this year. over the past six months, labour shortages in the norwegian economy have come into increasing evidence. unemployment has shown a marked decline and is now at a low level. employment is still on the rise, while the labour force has remained virtually unchanged in recent months. registered unemployment, seasonally adjusted, stood at 2. 5 per cent of the labour force in august. the number of registered unemployed adjusted for seasonal factors was around 61000. unemployment has declined for all occupational groups, and has been most pronounced in manufacturing, the construction industry and in the engineering and ict sectors. norges bank ’ s regional network also supports this picture. reports from the regional network indicate that capacity utilisation is high in the construction industry and in manufacturing, particularly among suppliers to the petroleum industry. there were reports of shortages of engineers and project managers. many of our contact enterprises in corporate services also reported increasing skills shortages. on the other hand, idle capacity is reported in retail trade and in household services. there are limitations to how much the supply of norwegian labour can increase ahead. labour participation rates are at a historically high level, particularly when taking into account demographic developments. developments in the labour market are similar to the profile observed ahead of the period of accelerating wage and cost inflation that started in 1998. several factors can explain why wage growth has been moderate so far during this cyclical utpurn. an increase in inward