is the basis for the initial conditions when we use nemo and when we make our policy decisions – and hence of core importance to monetary policy. theory and experience suggest that a weighted average of forecasts from different models is often more accurate than forecasts provided by individual models. norges bank ’ s short - term forecasts are based on combinations of statistical and econometric models, where each model is assigned a probability depending on past density forecasting performances. currently, we are working on how to incorporate mechanically density predictions from sam into nemo. the few examples that i have just described show how research on macro modeling and forecasting is important for our work. we are well aware that there will always be ample room for improvement in our toolbox, and we are fortunate to have such prominent speakers with us here today. this workshop is a great opportunity for us to become familiar with recent advances in bayesian econometrics. in addition to the pleasure of the scholarly discourse, i also hope you will have the opportunity to enjoy oslo. bis central bankers ’ speeches

fund ’ s value. this is reassuring since it implies that the fund ’ s capital is not being depleted. above all we should recognise that future returns on the fund are uncertain. ultimately, returns depend on the pace of growth in the world economy and the share of that growth that accrues as value in the companies and bonds in the fund ’ s investment portfolio. these variables are uncertain. growth in the world economy may come to a halt. governments may default on interest payments. real properties may fall in value when bubbles burst. to achieve returns, we must take on risk. the fund features a very long investment horizon and a sizeable capacity to bear short - term risk. if we can exploit these distinctive features when making investment choices, it should be possible to obtain a return in excess of average market return. shareholders are last in line when company profits are to be distributed. they bear a considerable risk. as compensation, shareholders have received a higher return over time – a risk premium. it is a good strategy for a fund such as ours to exploit this risk premium to seek excess returns. this is why the chosen allocation to equities is relatively high. in addition, a reasonable distribution between bonds and equities can contribute to reducing the fund ’ s overall risk, as bond and equity prices tend to move inversely. the bond portfolio may thus be seen as a kind of hedge against a drop in equity prices. in recent years, the fund has also invested directly in real estate. in the light of its size and long horizon, the fund is well positioned to make gains in low liquidity markets. real estate investment is an example. the mandate provides for an increase in the real estate allocation up to 5 percent, while the allocation to fixed - income instruments is to be reduced from 40 percent to 35 percent. a few years from now, almost two - thirds of the fund will thus be invested in real assets. this is a fairly high share. a pertinent question may still be whether as much as a third of the fund should be invested in low - yielding instruments. in the long run, a bond allocation of 20 – 25 percent should suffice to maintain the fund ’ s needed hedge against a fall in equity prices. risk management must encompass the fund ’ s overall risk. this can only be achieved if total risk is managed and controlled. this is why the fund is an integrated entity located in norges bank. norges bank works to preserve the fund