the strength of monetary policy ’ s impact. the new model has the potential to be a useful supplement to the bank ’ s main model, nemo. neither the household debt - to - gdp ratio nor the distribution of debt and assets across age groups are constant. over time, changes in these variables can influence the effect of the interest rate on the economy. the combination of an ample supply of microdata and more complex model analyses will strengthen the analytical basis for monetary policy. conclusion let me conclude. after a long period of low interest rates, the key policy rate is again on the rise. the rate increase can be expected to be gradual and is a response to the solid activity we now see in the norwegian economy. solid activity also means higher employment and prospects for higher wage growth, and norwegian households will be better off financially despite the rise in interest rate expenses. with the high level of household debt, the rate increase will likely have a greater impact on private consumption than earlier. however, the strength of this impact is uncertain. this suggests a cautious approach to interest rate setting – a strategy we are now pursuing. 7 / 7 bis central bankers'speeches

and wages. raising the rate also reduces the risk of a renewed rapid rise in property prices and debt. high price and wage inflation and a further buildup of financial imbalances would increase the risk of a sharp economic downturn further out. there are a number of factors to suggest that the key policy rate should be raised at a gradual and cautious pace. an environment of low global interest rates limits the room for manoeuvre. raising the key policy rate in norway too rapidly in the period ahead could act as a brake on the upturn in such a way that unemployment rises and inflation becomes too low. uncertainty about the effects of higher interest rates also suggests a cautious approach to interest rate setting. we have experienced a long period of low interest rates and rising household debt ratios. the effect of higher interest rates will therefore likely be more pronounced than the effect of earlier rate increases. i will return to this later. the risk outlook also reflects growing global protectionism and turbulence in some emerging economies. lower - than - expected global growth will have spillover effects on the norwegian economy. 1 / 7 bis central bankers'speeches the interest rate level the bank envisages for the years ahead is modest compared with historical interest rate levels. in the bank ’ s assessment, the level of the so - called neutral interest rate has fallen over time ( see brubakk et al ( 2018 ) and norges bank ( 2018 ) ). the key policy rate is therefore not expected to be as high as in earlier upturns. the objective of monetary policy is to maintain low and stable inflation and contribute to high and stable output and employment over time. as monetary policy is to be flexible and forward - looking, the key policy rate is lowered when the economy is entering a downturn. similarly, the key policy rate should be raised before the economy overheats. monetary policy affects inflation, output and employment through several channels. one important channel is the exchange rate channel. changes in the krone exchange rate affect economic activity in some business sectors and prices for imported goods and services. the krone exchange rate has acted as a shock absorber, as it did in 2014. a sharp depreciation of the krone dampened the negative effects of the fall in oil prices on the real economy. a low key policy rate contributed to underpinning a weak krone. at the same time, the responsible actions of the social partners restrained domestic cost inflation. the exchange rate and the interest rate differential