of china, india and central european countries into world trade. this may have had a permanent effect on wage shares. another possibility is that increased competition for labour will again push up wage shares. the outlook for the norwegian economy monetary policy influences the economy with a lag. norges bank therefore has to be forward - looking in interest rate setting. developments in prices and capacity utilisation in norway are influenced by both domestic conditions and economic developments in other countries. growth in the global economy is the strongest recorded in several decades. continued high growth in china and india is contributing to holding up growth. reforms in european product and service markets are also expected to lead to higher domestic demand. growth in the us is expected to slow somewhat. a decline in housing construction and difficulties facing the us automotive industry are two of the main factors dragging down growth. the turnover time in the us housing market has increased markedly and housing starts have shown a considerable decline. house price inflation has levelled off. there is a growing tendency towards mortgage payment problems for households with low debt - servicing capacity and creditworthiness. but so far the decline in the housing market has not had major spillover effects on either the wider us economy or the global economy. developments in international financial markets were marked by unrest during the winter months. equity prices fell markedly, but are now close to the levels prevailing in february. short - term interest rates in the us are now expected to remain unchanged in the period to summer, but to fall somewhat during the latter part of autumn. in the euro area, there are prospects that interest rates will stabilise at around 4 per cent. interest rates are expected to rise gradually in sweden and to peak in the uk in the course of summer. buoyant growth in the global economy has contributed to very high prices for oil, gas and other commodities. oil prices have averaged usd 59 per barrel so far this year, or close to usd 6 lower than the average in 2006. in the past week in particular, oil prices have increased markedly owing to the uncertainty surrounding the situation in the middle east. global demand for oil continues to grow, while production growth forecasts in non - opec countries have been revised downwards recently. oil futures prices one to two years ahead are just below usd 70 per barrel. commodity prices rose sharply in the first six months of 2006 and have since remained at a high level. the experience of previous periods of wide variations in commodity prices indicate that rising prices gradually lead to increased supply

. so inflation must be fought, also if it should rear its head in periods of low growth. real interest rates may need to be higher than what we have seen in the period of “ great moderation ”. the costs will certainly be felt, but compared with the situation 30 - 40 years ago, the macroeconomic framework is now well established and central banks have accumulated credibility over a number of years as witnessed by fairly stable long - term inflation expectations. in this sense, the economy is now more robust to shocks and costs should be smaller. there is reason for us all to be braced for a negative supply shock of considerable magnitude in the years to come. if global warming is a threat to mankind – and much evidence suggest it is – then carbon dioxide ( and other ) emissions must be reduced. that will entail costs, real costs. our future consumption path will be lowered, perhaps sharply. but as compensation we should have improved prospects for mankind. we have a choice however in how we go about reducing emissions : the efficient way, taxing emissions ( or auctioning permits ) and using the markets ; or the truly costly one of trying to subsidise away the problems with highly uncertain results. the debate and actual efforts so far give only moderate hope of a good outcome. but let us be optimists – at least for the time being. to combat climate change, the relative price of fossil fuels must increase. this can be regarded as a negative cost - push shock. is there a role for monetary policy here? yes, as in the case of other negative supply shocks : keeping inflation low and stable must be the overriding objective. and with regard to reducing emissions, keeping inflation low and stable is perhaps even more important, as this will help make changes in relative prices more visible. concluding remarks globalisation has so far given us the best of two worlds, high growth and low inflation. but looking ahead there might be challenges to both nominal and financial stability. kenneth s. rogoff ( 2006, see footnote 8 ). we must preserve a nominal anchor, even when times may become more difficult. history has shown us that low and stable inflation is the best contribution monetary policy can make to growth and macroeconomic stability. a new, globalised world does not change this paradigm. financial stability is enhanced by “ smart ” regulations that provide the right incentives. it is important to encourage innovation and to avoid overregulation. we must expect losses to occur and the