svein gjedrem : monetary policy in norway opening remarks by mr svein gjedrem, governor of the norges bank, to norges bank workshop on “ the conduct of monetary policy in open economies ”, held in oslo, on 26 - 27 october 2000. * * * introduction i am happy to welcome you to this workshop on “ the conduct of monetary policy in open economies ”. the workshop brings together researchers and practitioners of monetary policy from a wide variety of countries. the aim is to stimulate exchanges both across countries and between researchers and monetary policymakers on a topic of common interest. research on monetary policy is an international field. we thus find it tremendously useful to be a part of an international network of researchers and practitioners concerned with monetary policymaking. contact across central banks does represent an important source of inspiration to the policy discussions in norges bank. norwegian monetary policy the papers presented at this workshop address topics that are highly relevant to monetary policy in general and norwegian monetary policy in particular. some of you may be familiar with the norwegian system. for others it may be unknown that norway has a monetary policy regime that is unique in an international context : it is a system of neither a fixed exchange rate nor an inflation target. let me explain in more detail : the political authorities formulate norges bank ’ s mandate for the conduct of monetary policy. the exchange rate regulation of 6 may 1994 states that monetary policy in norway should be aimed at maintaining a stable exchange rate in relation to european currencies over time. norges bank has defined “ european currencies ” as the euro. what we mean by a “ stable exchange rate …. over time ” needs to be made more precise. the krone exchange rate has fluctuated in recent years, in spite of norges bank ’ s active use of instruments, indicating that norges bank cannot fine - tune movements in the krone exchange rate. thus, in its use of the interest rate norges bank focuses on the fundamental preconditions for stability of the krone exchange rate over time. empirical work on the norwegian economy suggests that there is mean reversion in the real exchange rate. this implies that higher inflation in norway than among its trading partners tends to be followed by a nominal exchange rate depreciation. thus, in order to stabilise the nominal exchange rate against the euro, monetary policy instruments must be oriented towards bringing inflation down to the level aimed at by the eurosystem. however

are reports of limited capacity in most regions. the number of unfilled vacancies is rising, and labour shortages are reported in almost every occupational category. there are shortages of drivers, pre - school teachers, supervisors, engineers, carpenters, architects, auditors, accountants, it personnel and health workers. it has probably not been since the 1970s that we find such widespread reports of purely physical production constraints, for example now in the form of shortages of rigs and other equipment in the petroleum industry or shortages of plank, concrete and insulation in the construction industry. unemployment has fallen markedly over the past year. the pace of decline and the level of unemployment are reminiscent of two earlier cyclical peaks, one in the mid - 1980s and the one that began at the end of the 1990s and continued into the present decade. both booms culminated in sharply accelerating cost and wage inflation. supply - side shocks to the norwegian economy the combination of strong growth, high capacity utilisation and low inflation is a reflection of favourable global developments and a number of positive supply - side shocks to the norwegian economy. the global expansion of recent years has resulted in strong growth in norwegian export industries. employment has increased and unemployment has declined. the favourable labour market has boosted household optimism and supported private consumption. strong demand growth and solid profitability have also paved the way for growth in business fixed investment in norway. so far, the weakening of the us housing market has not had pronounced spill over effects. growth in china and india is strong and the euro area is experiencing a broad - based upturn. global growth is probably less dependent on demand for goods and services in the us than was the case earlier. the global expansion has also resulted in high prices for many norwegian export goods. the increase in oil prices over the past 4 - 5 years has been very important. high oil prices over a longer period have boosted oil investments and there are prospects that the high investment level will be sustained in the coming years. oil prices peaked around usd 75 per barrel in summer 2006. later in autumn, prices fell. current futures prices indicate that market participants believe prices will remain above usd 60 per barrel in the coming years. a fall in prices in a number of commodity markets at the beginning of 2007 raised the question of whether the pronounced price rise of recent years was being reversed. the experience of previous commodity price cycles indicates that rising prices gradually lead to increased supply and reduced demand. this in turn leads to a fall in prices. following a