petroleum fund, measured by the government budget ’ s structural, non - oil deficit as a percentage of mainland gdp. we see that the plans call for a gradual increase in the use of petroleum revenues over the government budget. this can contribute to avoiding abrupt shifts in demand. the chart shows that the expansionary impetus varies substantially and is greatest in the first few years. the value of the petroleum fund will vary over time as a result of variations in the transfer of capital due to fluctuations in the oil price, petroleum production and the return achieved by the fund. how the guidelines are to be applied has been discussed thoroughly in various political documents. the expected real return shall be used as a basis for the phasing in of petroleum revenues. hence, the use of these revenues does not fluctuate in step with the actual real return. moreover, the calculations shall normally be based on an estimate of the fund ’ s size at the time the budget documents are completed. this means that fluctuations in revenues affect the budget with a considerable lag. the budget for 2002, for example, is based on the size of the fund at the beginning of 2001. estimates for petroleum revenues and the return through 2001are then added. these estimates are provided in the national budget presented in autumn 2001. the actual return on the fund in 2001 will not be included in the calculations until the budget for 2003. moreover, attempts shall be made to curb the impetus from particularly large fluctuations in the phasing - in rate implied by the main rule : “ in the event of extraordinary, substantial changes in the fund ’ s capital or in the structural, non - oil deficit from one year to the next, the change in the use of petroleum revenues must be distributed over several years based on an estimate of the size of the real return on the fund a few years ahead ” ( report no. 29 to the storting 2000 - 2001, p. 7 ). this means that fiscal policy can still be used to stabilise economic developments. this is a sound norwegian tradition, but may be demanding. at last year ’ s seminar, the central bank governor stated : “ in norway it is important that the annual budgets are anchored in a long - term strategy which takes into account that oil revenues may fluctuate from one year to the next ”. the guidelines satisfy the requirements of this long - term strategy. consensus concerning the guidelines and adherence to them will create confidence in the long - term formulation of fiscal policy. this

inflation projections is provided in : kjetil olsen and fredrik wulfsberg : “ the role of assessments and judgement in the macroeconomic model rimini ”, economic bulletin 2 / 2001, norges bank. important. in setting the interest rate, however, we also place emphasis on the probability distribution – or the balance of risk – surrounding the projection. therefore, we also publish our assessment of the risk associated with our own projections. the chart shows our assessment of risk as it was presented in the last inflation report, published on 31 october 2001. the black line represents what we consider the most probable development in the cpi. the bulk of the distribution was below the line. this is reflected in the formulation “ the probability that inflation two years ahead will be lower than 2½ per cent is greater than the probability that it will be higher. ” in order to reduce the possibility of substantial deviations from the inflation target, norges bank takes the balance of risks into account when assessing the interest rate. the assessment of the balance of risks largely expresses the bank ’ s own judgement. we have systematised our judgement so that it is possible for others to determine whether the bank ’ s assessments seem reasonable. the assessment of risk is linked to six factors that are important for price inflation. our assessment of risk associated with each of these factors is formulated as a probability distribution around the projection for the variable in question. the assessment of risk associated with the actual inflation projection emerges as a weighted average of these six distributions. the weighting of each factor reflects its significance to developments in price inflation as this emerges in our model. weighting is heaviest and approximately the same for domestic private demand, wage growth, growth in public expenditure and developments in the global economy. the weighting for exchange rate and oil price is somewhat lower. the chart shows our assessment of the balance of risks associated with estimated wage growth as it was presented in the inflation report 3 / 2001. we estimated 5 per cent wage growth in 2003. at the same time, we said that the probability that wage growth would be higher than projected was greater than the probability that it would be lower. we could present similar charts for the other five factors. the ” fan ” for the inflation projection is a topographical map of the overall assessment of the balance of risk. the risk model is discussed further in “ box : assessment of risk to the inflation projection ”, inflation report 2 / 2001, norges bank. the uncertainty associated with the analyses is one