jimmy carter appoints a new chairman of the federal reserve, the economist paul volcker. he is known as a hawk, willing to do what it takes to break the back of inflation. under volcker ’ s leadership, interest rates were raised sharply. inflation is eventually brought under control, but at considerable cost. between 1979 and 1982, unemployment in the us nearly doubles. at the time, norway has a fixed exchange rate regime. and the exchange rate target and interest rates are set by the government, not by norges bank. in the years after 1973, wages in norway rise quickly and faster than among our trading partners. to prevent competitiveness from deteriorating and unemployment from rising, the government devalues the krone. between 1976 and 1986, the krone is devalued as many as 10 times ( chart 3 ). imported goods become more expensive, and inflation in norway remains high. chart 3 frequent devaluations in norway krone exchange rate. index 8. 4 krone in terms of the currency basket index currency band for the exchange rate target devaluations weaker krone 7. 6 7. 2 6. 8 6. 4 stronger krone 5. 6 source : norges bank – historical monetary and financial statistics norges bank economic perspectives 2023 the devaluations reflect a well - known economic policy problem. the authorities can draw up a long - term plan, such as maintaining a fixed exchange rate. but because it will be tempting to deviate from the plan to reap short - term gains, any promises to stick to it are of little value. in the economics literature, this is called the “ time - inconsistency problem ”. 3 a new monetary policy framework emerges over the following decades, economic reforms are implemented in both norway and other countries. many of the changes are directly motivated by the experience of the 1970s. it had turned out that it was difficult for the authorities to commit to an objective of price stability. it had also proved impossible to bring about a permanent decrease in unemployment by pursuing an expansionary monetary policy over time. eventually, such a policy will only cause wages and prices to surge. and if high inflation becomes entrenched, it can be costly to bring it back down. in the 1980s and 1990s, central banks in many countries are granted greater independence from the political authorities. this mitigates the time - inconsistency problem. central banks can – and should – make unpopular decisions when necessary

in the services sector. 16 the reasons for this are several, but two themes are worth highlighting for the current policy debate. one is the relatively closed nature of services markets within europe, which slows down the diffusion of new technologies. given the relative importance of services in our economies, this weighs on aggregate productivity growth, as well trickling down to other sectors. 17 this calls for the completion of the single market in services. a second theme is the relative rigidity of national labour markets. reaping the productivity gains from adopting new technology tends to require fundamental organisational restructuring – for instance, due to the automation of certain tasks. this means that firms need to have the flexibility to reallocate workers to different tasks, which in turn requires them bartelsman, e. j., j. haltiwanger and s. scarpetta ( 2013 ), “ cross - country differences in productivity : the role of allocation and selection ”, american economic review, vol. 103 ( 1 ). world bank ( 2013 ), doing business 2014 : understanding regulations for small and medium - size enterprises. foster, n., poschl, j., rincon - aznar, a., stehrer, r., vecchi, m. and venturini, f. ( 2013 ), “ reducing productivity and efficiency gaps : the role of knowledge assets, absorptive capacity and institutions ”, in european competitiveness report, dg enterprise and industry, european commission. see for example gomez - salvador, r., a. musso, m. stocker and j. turunen ( 2006 ), “ labour productivity developments in the euro area ”, ecb occasional paper no. 53, october 2006. bourles, r., cette g., lopez j., mairesse, j. and nicoletti, g. ( 2012 ), “ do product market regulations in upstream sectors curb productivity growth? panel data evidence for oecd countries ”, review of economics and statistics, mit press, vol. 95 ( 5 ). bis central bankers ’ speeches to have access to adequate initial and vocational training – something which on the whole us firms seem to have been able to do better than european ones. 18 as part of this process, reallocation of resources is both unavoidable – as firms need to restructure – and essential – to concentrate resources where they are most productive. there are however important