svein gjedrem : economic perspectives annual address by mr svein gjedrem, governor of norges bank ( central bank of norway ), at the meeting of the supervisory council of norges bank, oslo, 20 february 2003 * * * the global economy is ailing, plagued by a recent history of unsound investments, a fall in equity prices and fears of terror and war. in norway, employees obtained the strongest increase in real wages for a generation in 2002. petroleum revenues have generated excessive optimism. the imbalances caused by the combination of global stagnation and the high norwegian cost level are leading to job losses and higher unemployment. why has the krone appreciated? the krone is strong. as a result, prices for imported goods have fallen. this has led to low and stable inflation in spite of sharp wage growth. it would appear that inflation will also remain low in the years ahead. chart 1. effective exchange rates 1990 = 100 gbp nok nzd sek source : ecowin the krone exchange rate fluctuates. this is not surprising because other countries ’ currencies also fluctuate. the swedish krona depreciated sharply in 1992. since then it has remained weak, but has shown wide variations. pound sterling appreciated by more than 20 per cent between 1996 and 1998, reflecting solid growth in the uk economy from the mid - 1990s. a currency that has exhibited wider swings than most is the new zealand dollar. a sharp appreciation up to the mid - 1990s was subsequently reversed. over the past two years, this currency has moved in tandem with the norwegian krone. the krone exchange rate is the price of our currency measured in terms of a foreign currency. developments in other countries are just as important for the krone as developments in the norwegian economy. capital flows freely and flows can change rapidly. this can spill over to exchange rates and interest rates as well as output and employment. chart 2. equity prices and long - term interest rates in the us index per cent 10 - year rates ( right - hand scale ) standard & poor's 500 ( left - hand scale ) source : ecowin currency swings are driven by cross - border capital movements. capital flows were heavily influenced by investor focus on stock market returns until the downturn began. in the us, equity prices almost trebled between 1995 and 2000. stock markets in other countries followed suit. capital inflows into the stock market resulted in

, we are eager to hear specifics from institutions so that we can develop targeted solutions. conclusion mr. chairman, in my remarks today i have described the federal reserve's views on suggested changes to the current regulatory risk - based capital regime, namely the proposals for basel ii and amended basel i. i have outlined the need for change, the work completed to date, and some of the lessons learned. in our view, recent exercises such as qis4 have served as useful indicators of the progress being made and the direction needed for these initiatives on regulatory capital requirements. qis4 was part of an extended series of activities to ensure that the suggested regulatory capital revisions are implemented in an appropriate and prudent manner. from the federal reserve's perspective, we should continue to move forward with the activities i described, while seeking comment and listening to feedback at every stage. our support for basel ii stems from the belief that it would provide a much better measure of minimum regulatory capital at the largest, most complex institutions, aligning capital with risks to which these institutions are exposed. we also believe that basel ii would bring about substantial improvements in risk management to those institutions. at the same time, amending basel i for the vast majority of banking institutions in the united states could improve the reflection of risks in basel i - based rules without much additional burden. taken together, these initiatives should ensure adequate minimum capital cushions, allow fair competition, maintain safety and soundness, and enhance financial stability. i am pleased to answer your questions. 6 / 6