( mainly aluminium ) and food products and thus has both gained and suffered from rising raw material and food prices. terms of trade have remained favourable, although they have declined from their recent peak. despite access to abundant domestic renewable energy, imported fossil fuels impact the icelandic value chain both through the price of imported fuels, various imported goods and generally the cost of transportation, which is high given iceland ’ s remoteness from major markets. fuel is also an important cost item in fisheries. rising import prices, however, result not only from the war in ukraine, but can be partly explained by supply - chain disruptions and the container cost crisis triggered by a reallocation of resources in the global economy as it recovered from the pandemic. the cost increases seep into the global value chain and affect inflation globally. eventually those mismatches are being resolved from the supply side, as firms respond to price signals, and from the demand side, with global tightening of monetary conditions and the withdrawal of fiscal stimulus. mismatches are being resolved by increased supply and global tightening the post - pandemic recovery in iceland has two distinguishing features that set it apart from the recovery in most other oecd economies. firstly, the expansion of the tourism sector and the associated construction boom have relied quite strongly on imported labour. because of net migration the average rate of population growth since 2016 has been 2 %, far higher than in other advanced countries. the rate of population growth has also been quite variable. to some extent, cyclical expansion has been facilitated by variability in the net migration rate rather than the domestic unemployment rate. population growth fell into negative territory following the gfc, but has twice peaked at 3 % during periods of tourism sector expansion, before and after the pandemic. recovery of tourism causes net migration to rise while the variability of net migration can be a useful shock absorber, helping to keep unemployment low and relatively stable during downturns and make the labour market less overheated during expansions, variable population growth creates problems in the housing market. the most recent surge in net migration has amplified the impact of covid - related expenditure switching on housing prices. the demand for housing fluctuates in line with migration ; however, the character - istically inelastic supply of housing may become even more inflexible if volatile migration makes future housing demand more uncertain. as a result, what is gained in terms of a more flexible labour market may be lost due to a more

benign in the period ahead than during the pre - pandemic period. the fiscal and monetary dimension of the response to pandemic and war three factors are likely to have determined the fiscal and monetary response of different countries to the pandemic : i ) fiscal and monetary space at the outset, ii ) the severity of the outbreak and iii ) structural factors that affected the economic impact of the outbreak and restrictions imposed to contain it. on the first two accounts, iceland was in a relatively good position. modest public debt gave the government significant fiscal space, and the outbreak and restrictive measures were moderate. the structure of the economy, on the other hand, with tourism - related services being the largest sector, created a large potential demand for fiscal accommodation to compensate affected firms and households, as discussed above. as in other countries, both fiscal and monetary policy were applied to respond to the pandemic with substantial easing, and the size of the fiscal measures taken were close to the average in oecd countries. fiscal measures in response to the pandemic iceland ’ s monetary space was also substantial, with domestic interest rates being significantly above zero at the outset of the pandemic. however, the size of iceland ’ s monetary space should not be overestimated. the combination of relatively illiquid currency markets, fairly strong exchange rate pass - through to prices and a long history of monetary instability limit how much the interest rate differential visa - vis abroad can narrow without a risk to inflation. nevertheless, the central bank of iceland ’ s policy rate was reduced to a historical low, greatly softening the blow to the domestic economy, especially the construction sector. as it turned out, the economy recovered very strongly as covid restrictions were lifted and the central bank needed to withdraw the monetary stimulus and start raising interest rates earlier and at a faster pace than most advanced countries. from accommodative to tightening policy reversing the stance of fiscal policy has been a more gradual process. as temporary support measures have expired, the fiscal stimulus has gradually petered out and, with the economy expanding faster than previously forecast, public finances have also recovered faster than expected. the accelerated pace of the economy provides an opportunity to reach a structurally adjusted fiscal balance at an earlier stage than expected. however, although the current fiscal policy framework may be relatively transparent and predictable, it does not seem to provide a sufficiently strong incentive to take advantage of unexpected fiscal windfalls in a counter - cyclical fashion. consequently, monetary