in the western and southwestern areas of the country where the oil service industry has predominated in recent decades. countrywide the downturn has not been as pronounced as the contraction triggered by the financial crisis. excluding that sharp, albeit short, contraction, the period of weak growth we are now experiencing has not been seen since around 1990. mainland output per capita has stagnated over the past two years, and the level of real wages is lower than in 2014. chart : oil investment and spending of petroleum revenues most of us might say that the economic winter has been fairly mild so far. this is partly because the economy has been provided with ample fuel. when oil prices started to fall, the economy had for several years enjoyed both strong growth in oil investment and fiscal spending of petroleum revenues. oil investment has since declined, while government spending has continued to rise. spending of oil revenues has increased by about as much as oil investment has fallen since 1 / 9 bis central bankers'speeches 2013. chart : key policy rates monetary policy has also made a substantial contribution. an already low policy rate was cut further. the key policy rate has now been kept at a record - low 0. 5 percent for close to a year. in our neighbouring countries, interest rates have come down to even lower levels, but in real terms the interest rate level has been lowest in norway. the krone exchange rate fell in tandem with the oil price and led to higher prices for imported goods, resulting in a temporary increase in inflation. since there is confidence that inflation will remain low and stable, we have been able to disregard that increase when setting monetary policy. the social partners have shown wage restraint. the krone depreciation has thus translated into a marked decline in relative labour costs, which has helped strengthen the position of norwegian firms exposed to international competition. chart : changes in employment so far, however, it is only in the tourist industry where a weaker krone has led to clearly higher activity. since oil prices started falling in autumn 2014, employment has shown solid growth in the hotel and restaurant industry, but otherwise almost two in three new jobs have come in the public sector and the construction industry. growth in those sectors has offset the decline in oilrelated industries, where one in five jobs has been lost. the strong growth in jobs in the construction industry reflects the economic policy pursued. public investment has increased, and low interest rates have fuelled house price inflation and led to a sharp rise in housing construction. in

defenders of old truths see the light, but rather because they eventually die. 4 if we take a closer look at the basel iii framework, there are still signs of innovation. macroprudential policy is a new element of the framework, aimed at containing systemic risk in banks and financial institutions. for the first time, international banking regulation includes requirements grounded in the interplay between the banking sector and the rest of the economy. we must acknowledge that in the run - up to a financial crisis, the authorities, banks and other economic agents often confuse good times with normal times. strong growth in real estate prices, credit and tax revenues are perceived as normal. statistical filtering methods confirm that trend growth is high and that debt growth is sustainable. this time is different. we should know better – because we have fairly extensive knowledge about the economic background leading to financial crises. analyses, including our own, show that a rapid accumulation of debt almost always precedes a financial crisis. empirical studies document that high debt growth increases the probability of a crisis and results in a deeper crisis. 5 debt is at the core of all financial crises. real estate prices also rise rapidly ahead of a crisis. and it is warning signal when banks have to run to securities markets to finance growth faster than deposits alone allow them to do. systemic risk increases when imbalances build up. macroprudential policy is designed to address the systematic features of financial crises, strengthen bank resilience and curb the probability of a crisis. policy rules and transparency are aimed at avoiding complacency in good times. for example, the basel iii framework specifies that the ratio of credit to gdp should be a conditioning variable when setting the level of the countercyclical capital buffer for banks. the authorities must explain and justify their actions, or their inaction. if banking regulation is to be effective, not only must we be able to identify imbalances that are building up, but we must also understand the interaction between banks and other economic agents and how systemic risk arises. lessons from the 1960s and 1970s showed that detailed regulation was not very effective. if we are to intervene in the markets, we must understand how the market functions and why the market cannot be left to its own devices. this provides a basis for regulating markets and insight into regulatory effects. from the textbooks we are well aware of the ingredients of market failure – or the preconditions for regulating markets. environmental economics is often used as an example. if a poll