##spicacious article in 1981 on cyclical policies in norway in the 1970s : “ it will otherwise always be a problem for economic policy that the statistics are prepared more or less after the events, and that it takes time after the statistics are published before we are aware of whether new trends have begun to emerge. [... ] moreover, the analyses were based on projections of productivity growth that proved to be too high. ” as i pointed out in my introduction, there was strong growth until 1973, and it took time before it became apparent that there had been a negative shift in potential output. the red dotted line in the chart shows what gdp would have been if the growth rate had been the same after 1973 as in the previous 10 years. because the negative shift in the level of potential output was not discovered in time, a counter - cyclical policy was employed in an attempt to sustain the output level. whereas the output gap was believed to be negative, it subsequently proved to be positive, as illustrated by the chart. similarly, in a study of previous us monetary policy, ophanides11 finds that central banks overestimated the level of output that was consistent with stable inflation in the 1970s because they were not aware of falling productivity growth in time. as a result, the output gap was underestimated and policy was too expansionary. also in the 1990s, we saw an increase in productivity growth, and even though the mistake from the 1970s was not repeated, there was a vigorous debate concerning different targets for trend growth and the output gap. in addition to the difficulty of capturing changes in potential output fast enough, there is also considerable uncertainty about the level of actual gdp. as an example, norway ’ s gdp figures were extensively revised in june 2002. growth in mainland gdp was revised upwards by an average of 1 percentage point per year for the period 1995 - 1999. the largest revision was for 1999. as late as in may 2002, we believed that growth in 1999 had been 1. 1 per cent. the revised figures now show that growth was in fact 2. 7 per cent. it is obvious that such revisions can have a considerable impact on the actual output gap. norges bank is currently systematising different vintages of national accounts figures. we can then go back and evaluate monetary policy in “ real time ” to learn how we should respond to uncertain data. frank knight ( 1921 ) differentiates between “ risk ” and “ uncertainty ”. 12 with risk, we know

monetary policy we seek to take into account the risk of a build - up of financial imbalances. after rising sharply over many years, house prices flattened through 2013. in recent months, house prices have shown a renewed rise. household debt has increased at a faster pace than household income over several years. a robust monetary policy aims to provide an improved path for inflation, output and employment over time. a lower key policy rate can push up both inflation and demand for goods, services and labour in the short run. on the other hand, a lower key policy rate would have augmented the risk of a further build - up of financial imbalances. a persistently pronounced increase in house prices and debt may lead to a build - up of financial imbalances that may trigger or amplify an economic downturn – with high unemployment as a result. this suggests a gradual approach in interest - rate setting. robust banks and financial sector regulation are crucial for financial stability. increased capital requirements for banks are now being phased in. in 2013, the ministry of finance assigned norges bank the task of providing advice on a countercyclical capital buffer for banks. in december, the ministry set the buffer rate at 1 percent, in line with the advice issued by norges bank. the requirement will apply from 30 june 2015. the purpose of the countercyclical capital buffer is to enhance banks ’ resilience to periods of large losses. the buffer rate will be increased when financial balances are building up or have built up over a period. in the event of an economic downturn and large bank losses, the buffer rate can be reduced, with a view to mitigating the procyclical effects of an undesired tightening of bank lending. the buffer is not an instrument in the ordinary management of business cycles. changes in capital requirements may nonetheless influence banking behaviour and hence economic developments. banks can satisfy increased capital requirements in several ways. they can raise equity from their owners and some banks have already done so. should banks choose to increase their lending margins or restrict lending by other means, this will have an impact on economic activity and inflation. new capital requirements may therefore influence the conduct of monetary policy. while increased capital requirements will strengthen banks ’ solidity and may mitigate the build - up of imbalances, we cannot proceed under the assumption that new regulations will eliminate the risk of financial instability. a robust monetary policy will therefore continue to take into account the risk of a build