prices ( figure 3, top panel ) followed the 1973 - 74 oil crisis, which is also associated with somewhat smaller asset - price declines in numerous other nations. we take a closer look at the components of the aggregate asset - price index and compare their evolution around this u. k. cyclical peak to their average evolution during all recessions excluding our three asset - price - bust episodes ( figure 4 ). equity prices registered a remarkably sharp decline in this episode. but arguably a more distinctive characteristic of this asset - price boom - bust episode is the swing in real estate prices. residential real estate prices, and especially commercial real estate prices ( figure 4, bottom panels ), also registered rather dramatic declines in this episode. it may thus be surprising that this recession does not appear to have been deeper than the average of recessions excluding the three asset - price - bust episodes. the output gap ( figure 5 ) fell along with asset prices before the recession, but the decline was from an unsustainably overheated level. and investment ( figure 5 ) stayed relatively strong compared with other recessions. despite this episode being associated with rather severe declines in equity and commercial real estate prices, no evidence of an investment overhang appears in this comparison. next, let us turn to the japanese experience. the japanese economy saw rapidly increasing equity and real estate prices during the 1980s ( figure 6 ), a remarkably long period of stability and prosperity. these run - ups in asset prices were accompanied by a rapid expansion of bank credit, which was especially important for financing real estate purchases. but asset prices collapsed at the turn of the decade. this “ bursting of the bubble, ” as the episode is often referred to by japanese officials, was followed by a decade of relative stagnation marked by three arguably related recessions. concentrating attention on just the first of these three recessions, beginning in 1992, proves insufficient to capture the severity of the overall problem. the detailed comparisons of the 1992 recession with other episodes ( figure 7 and figure 8 ) do not indicate unusual weakness associated with the 1992 recession. rather, the 1990s in japan are more notable for the succession of incomplete recoveries than for the recessions themselves ( figure 6 ). to compute these averages, we first centered the path of asset prices around each recession episode. the quarter in which the recession began is marked as zero, and quarters from – 8 to + 8 denote the preceding and subsequent two years. asset prices in each episode are normalized to

goods and services and reduce inflation. lower interest rates have the opposite effect. if evidence suggests that inflation with unchanged interest rates will be higher than 2½ per cent, the interest rate will be increased. if it appears that inflation with unchanged interest rates will be lower than 2½ per cent, the interest rate will be reduced. there is symmetry here. it is equally important to avoid an inflation rate that is too low, as it is to avoid an inflation rate that is too high. the situation in the labour market the supply of labour is limited in the norwegian economy at present. we have a tight labour market. the labour force participation rate is high. extensive use of disability and sickness benefits is limiting the supply of labour. reforms such as contractual pension schemes, which were expanded through the 1990s, cash allowances for families with small children and an increased number of vacation days this year and next also contribute to reducing the labour supply. recently, unemployment has declined again. adjusted for normal seasonal variations, the number of registered unemployed now stands at 59000, or 2. 5 per cent of the labour force. of these, about ¾ percentage point, or about 16 000, have been unemployed for more than 6 months. the tight labour market is the result of a high activity level in the norwegian economy. growth in household and enterprise debt is strong. the phasing in of petroleum revenues in the years ahead will keep demand for labour at a high level. the centralised income settlements in norway have been an arena of coordination, where considerable emphasis has been placed at times on overall employment. this has contributed to low unemployment levels in our country. but we have also experienced that the income settlements may be a source of economic disturbances. the income settlements in 1974 / 75 and 1986 in particular, but also the settlements in 1998 and 2000, contributed to higher cost inflation and weaker demand for labour. we have seen that income formation is affected by labour market conditions and profit trends in the business sector. this is also true of wage and income developments among managers, salaried employees and the liberal professions. the structural changes that now seem to have occurred in income determination for these groups has probably also been important for the outcome of the ordinary wage settlements. through the last part of the 1990s, factor income rose as a share of labour costs. over time, a balance will probably be reached between labour costs and the portion of income that goes to servicing capital. to some extent the process will be self - regulating. high