and competitiveness ”, given by deputy governor jarle bergo at a conference hosted by the norwegian association of economists in oslo, 5 september 2002. another possibility would be to place weight solely on minimising variation in output or unemployment. this kind of policy does not improve the growth potential in the economy, but smooths fluctuations. furthermore, this would generate very large variations in inflation as the economy would then be without a nominal anchor. this policy would in practice be unsustainable because it does not provide the answer to how monetary policy should respond to wage - and cost - driven unemployment. this would mean ignoring the experiences of the 1970s and 1980s. if economic agents feel confident that inflation will remain low and stable, and take account of this in their behaviour, inflation will move more quickly towards the target. the interest rate will then need to be adjusted less each time inflation has to be brought back to the target. this will also result in more stable developments in output and employment. developments in financial markets after inflation targeting was introduced indicate that market participants are confident that we will keep inflation low and stable. this is reflected, for example, in the long - term interest rate differential between norway and the euro area. the interest rate differential currently stands at around 1 percentage point, which corresponds closely with the difference in monetary policy objectives. confidence among financial market participants is an important asset if it proves necessary to use monetary policy to sustain the level of economic activity. it also lays the basis for lower interest rates over time. we do not have to pay an additional risk premium because there is uncertainty about inflation. maintaining a firm monetary policy over time is therefore highly valuable in itself. on the other hand, the outcome of last year ’ s wage settlement, and the debate that followed, indicate that the social partners have not yet internalised the monetary policy response pattern ensuing from the mandate laid down by the government and the storting. exchange rate developments the krone has appreciated considerably since summer 2000. there may be many reasons for this. relationships in the foreign exchange market are unstable. there are nevertheless some fundamental forces that influence the krone exchange rate. the phasing in of petroleum revenues and the economic situation affect the exchange rate. in addition, the real exchange rate has a tendency to return to its normal level if there are substantial deviations over time. moreover, the krone can be influenced by shifts and changes in wage formation, and the krone exchange rate can also be affected by external

1 ‐ 2 ‐ 300 ‐ 2 ‐ 2. 2 ‐ 200 ‐ 1. 8 ‐ 3 ‐ 3 ‐ 3. 5 ‐ 4 ‐ 4. 3 ‐ 5 ‐ 400 ‐ 6 ‐ 6. 4 ‐ 500 ‐ 7 ‐ 6. 4 ‐ 8 ‐ 8. 4 ‐ 600 fiscal balance ‐ 9 as % of gdp ( right hand side ) figure 13 : tax revenue by category ( in $ million ) other - direct property personal corporate other - indirect excise import duties vat government expenditure rose by an estimated 3. 4 % in 2009, below the 14. 1 % increase in 2008 and approximately equal to the average growth rate of expenditure in the 2001 - 2007 period. the slower rate of expansion in current spending was primarily attributed to the lower rate of growth in transfers and subsidies, and a reduction in capital expenditure and interest payments. transfers and subsidies were up by 5. 1 %, on top of an expansion of 19. 3 % in the equivalent period one year earlier. the university of the west indies ( uwi ), the transport board ( tb ) and the queen elizabeth hospital ( qeh ) were the main beneficiaries. table 6 : significant government transfers and subsidies ( in bds $ m ) institutions fiscal year q. e. h u. w. i t. b other total 2006 / 2007 130. 1 96. 8 40. 2 553. 5 820. 6 2007 / 2008 138. 5 105. 1 34. 8 699. 3 977. 7 2008 / 2009 159. 5 128. 6 40. 0 808. 9 1137. 0 2009 / 2010 ( p ) 166. 0 126. 2 40. 9 719. 6 1052. 7 p : provisional source : ministry of finance in addition to the funds allocated to the tourism industry relief fund ( tirf ) to assist the ailing tourism sector, government set up the employment stabilisation scheme 3 to assist businesses with their operating costs provided they maintained pre - crisis levels of employment. also, a $ 10 million fund was created to facilitate the retraining of employees and the payment of a stipend to participants of vocational training courses who were registered as unemployed by the national insurance board. wages and salaries by government rose by approximately 11. 3 % during the year, after a moderate contraction of 1. 7 % in 2008, because of retroactive payments for 2008 and a 4. 5 % increment from the start of the fy 2009 /