bank watch discusses monetary policy trade - offs in an environment of high inflation, and whether the costs of high inflation after a cost - push shock are exaggerated in our modelling system. they point out that an optimal monetary policy response depends on the nature of the economic shock and the transmission of monetary policy. at the same time, the cost of high inflation must be measured correctly. let me first say that these are the very questions that have featured in the discussions of our monetary policy and financial stability committee over the past year. among other things, we have devoted considerable time to assessing the effect of higher interest rates on household disposable income and the relative importance of the nominal and real interest rate. the results were also presented in a box in the june 2022 monetary policy report. 2 / 3 bis - central bankers'speeches at the same time, the conduct of monetary policy is not mechanistic. models are useful, but they are simplifications and must be supplemented by other information. for example, loss functions in such models cannot be directly interpreted as the committee's view of inflation costs. as the deviation from the target increases, we need to assess the risk of high inflation becoming entrenched in the expectations of households, firms and fx market agents. if this were to happen, we may find ourselves in uncharted territory, where the costs are far higher than when inflation expectations are anchored to target. as last year, norges bank watch notes that norges bank's fx transactions related to tax payments to the government result in volatility in the money market premium. as long as the short - term money market functions well, norges bank will not seek to steer such risk premiums. but we do not want to contribute to needless volatility, which is why we seek to make fx transactions as smoothed and predictable as possible. the ministry of finance is now appointing a working group, in which norges bank will participate, tasked with examining various aspects of the government's liquidity management. the practical implementation of the petroleum fund mechanism is one of the topics for discussion. among the matters the working group will consider is whether the number of due dates for petroleum tax should be increased. let me conclude by again thanking norges bank watch for an excellent report. as i stated in my introduction, such an assessment is very useful for us, and we will take the committee's recommendations on board in our work going forward. thank you for your attention

play a greater role in the years ahead. the overall risk in the financial system is greater than the sum of the risk represented by each individual bank. which macroprudential instruments would be the most suitable is currently being discussed in detail in various international fora and central banks. one instrument that will be introduced is the countercyclical capital buffer for banks. the purpose of this buffer is to reduce the procyclicality of bank lending. when banks are required to hold more capital in a period of high credit growth, they will be more robust to large loan losses. in addition, increased capital requirements could restrain credit growth. the ministry of finance has the overriding responsibility for regulating the financial industry, but norges bank will be given the primary responsibility for elaborating the basis for the establishment of the countercyclical capital buffer. with a buffer ceiling of 2. 5 percent of banks ’ risk - weighted assets, the buffer will probably have a limited downward impact on banks ’ lending enthusiasm in good times. but banks that have solid capital reserves can take larger losses before having to limit lending to creditworthy customers. the countercyclical buffer comes on top of a new, comprehensive regulatory framework. equity capital requirements will be tightened. banks will face stricter maturity requirements for funding, limiting their share of short - term funding. they will be required to hold more liquid assets. all in all, the new regulatory regime will contribute to a more robust financial system and reduce fluctuations in credit growth. bis central bankers ’ speeches the turbulence in europe, which started with the problems in greece, has now prevailed for close to two and a half years. financial market sentiment and banks ’ access to funding have varied widely during the period. the nascent market optimism may continue, but it is fragile. should the economic situation abroad worsen again, and credit markets dry up, other tools can be put to use in norway. during the financial crisis in 2008, several measures were deployed, such as the so - called swap arrangement, which provided banks with access to liquid government securities in exchange for covered bonds. smaller banks were given loans with longer maturities. the measures aimed at improving banks ’ access to long - term funding. the measures enabled banks to maintain virtually normal lending standards for norwegian households and businesses. norway ’ s swap arrangement and quantitative easing have some common features : bonds shift from private to public hands, and banks ’ funding costs become lower than would otherwise have been the case.