and the first four years following the crisis. the charts show developments in the four indicators in these periods compared with developments in normal periods. as shown, all the indicators rose markedly prior to financial crises in the 16 countries. we have used the data set to develop an empirical model for estimating crisis probabilities. the key indicators are included as explanatory variables in the model. the model – a logittype model – predicts a binary outcome. the binary variable takes a value of one when the economy is in a pre - crisis period and the value zero otherwise. the model - based prediction can be interpreted as the probability that the economy is in a pre - crisis period. we have defined this period as one to three years prior to the crisis. a large number of model specifications using various combinations of the explanatory variables have been tested. the indicators are incorporated in growth form or as deviations from estimated long - term trends. the empirical results as a whole support our choice of key indicators of financial imbalances. household and corporate credit, house prices and banks ’ wholesale funding ratio are statistically significant in the models and contribute to raising the estimated probability of a crisis. in addition, the results indicate that a low equity ratio in the banking sector can be an early warning of future instability. chart : early warning models for financial crises the chart shows estimated crisis probabilities for norway based on various combinations of explanatory variables and trend estimation methods. a clear pattern is that crisis probabilities increased markedly in the years ahead of the banking crisis in 1988 – 1993 and ahead of the financial crisis in 2008 – 2009. both of these periods featured rapid growth in credit and real estate prices, combined with a surge in banks ’ wholesale funding ratio. the chart shows that the estimated crisis probabilities have declined since the financial crisis, although the spread between the predictions from different variants of the model is considerable. the relationship between the indicators and the probability of a crisis in the model is not linear. the greater the magnitude of the financial imbalances at the outset, the more pronounced the effect of an increase in credit growth or house price inflation will be. we have seen that financial imbalances often wind down in connection with crises. the ratio of household debt to gdp fell markedly in norway in the wake of the 1990s banking crisis and it has fallen in countries such as spain, the uk and the us after the financial crisis in 2008. in norway, household

objective that the fund shall support government saving and support long - term considerations in the use of petroleum revenues. in the mandate from the ministry, this has been specified by providing that norges bank shall seek to achieve the highest possible long - term real return with moderate risk. the santiago principles also emphasise the importance of a clear division of roles and responsibilities and of avoiding micromanagement of investment activities. this is provided for with regard to the relationship between the ministry of finance and norges bank as the ministry does not issue instructions in matters relating to the exercise of ownership rights or individual investments. the santiago principles are derived from more general principles of corporate governance. an important purpose of these principles is to mitigate what is called the “ principal - agent problem ”. this problem arises when a principal delegates a task to an agent who has more information and who may have interests other than those of the principal. delegated investment management is an often - used example of a situation where the principal - agent problem can arise. in the current governance model, it is natural to think of the ministry of finance as the principal and norges bank as the agent. for the ministry, the formulation of the management mandate, reporting and supervision will be important tools for ensuring that investments are managed in line with objectives. it is my view that the interests of the ministry and the bank largely coincide. all employees of the bank are highly conscious of the bank ’ s social mission. but there is no escaping the fact that the bank has much more information about the investments and their management at its disposal than the ministry. the ministry has given norges bank a relatively detailed mandate for the management of the fund. the investment strategy is largely determined by this mandate. the mandate sets the benchmark index and tracking error limits. in addition, the mandate imposes constraints on the fund ’ s investment universe. the permitted deviations between the actual portfolio and the 2 / 7 bis central bankers'speeches benchmark portfolio are subject to defined limits, also known as index - tracking, which means that the gpfg ’ s return and investment risk are for the most part determined by the benchmark index. chart : return on the gpfg and the benchmark index the role of the bank and the executive board in formulating and elaborating the management mandate is to advise the ministry of finance. this is an important job. beyond this, the bank has limited responsibility and room for determining the overriding investment strategy, especially in comparison