revenues – and a clear savings plan – had provided us with considerable leeway. as a result, fiscal policy could also be put to effective use during the downturn. the guidelines stipulate that the government budget deficit shall over time be equivalent to 4 per cent of the capital in the government pension fund global, – more in bad times, less in good times. chart 8 : fiscal policy. change in the non - oil budget surplus from 2008 till 2010. in billions of nok a fall in output and employment automatically leads to reduced taxes while unemployment benefits increase. an important aspect of the fiscal rule is that it includes a mechanism whereby these effects also translate into a weaker budget balance. these automatic stabilisers generated strong impulses through 2009 and 2010. the decline in output and employment automatically triggered a reduction in taxes and an increase in transfers of more than nok 40 billion for the two years as a whole to the benefit of households and firms. the increase in the government pension fund global provided, under the fiscal rule, room for a nok 25 billion increase in spending. the government and the storting approved additional spending, bringing the overall contribution from fiscal policy to more than nok 100 billion in these two years. hardly any other country provided such strong overall stimulus through the use of public instruments during the crisis. the guidelines from 2001 provide a clear long - term framework for monetary policy and fiscal policy and provide for cyclical adjustments in economic policy – in part automatically and in part through judgement. in this way, the guidelines reconcile the need for a flexible approach to macroeconomic management with the gains brought by a commitment to more long - term operational objectives. a decade of inflation targeting inflation is so low today that most people barely give it a thought. the rate of increase in consumer prices has disappeared from the front pages, where it was a frequent guest in the 1980s. we do not miss inflation. even though inflation over the past decade has been close to the target of 2. 5 per cent, demanding trade - offs have had to be made over the years. the element of judgment in the conduct of monetary policy has been put to the test. through the years, we have gained insight into the functioning of the norwegian economy under an inflation targeting regime. let me touch upon some of those insights. bis central bankers ’ speeches chart 9 : krone exchange rate, inflation and norges bank key policy rate. january 2001 – december 2010 the experience of the beginning of the decade revealed how

of the norwegian economy, for example by investing in infrastructure, research and education. the report to the storting in 2001 noted that “ [ … ] a high tax level entails economic costs [ … ] ”. the authorities have used the fiscal leeway to implement standard increases and raise spending in a number of areas. on the other hand, the priority given to measures aimed at boosting productivity and hence the long - term growth potential, including adjustments to the tax system, seems to have receded somewhat into the background. the main objective of fiscal policy is to secure the provision of good public services, ensure an appropriate distribution of income and invest in major infrastructure. this objective must apply in good times as well as bad. at the same time, all desirable spending programmes must be prioritised within an overall budget framework. fund structures or other forms of financing outside the ordinary budget are only a way of avoiding budget constraints. this would weaken the credibility of the fiscal rule, which in turn would affect interest rate setting. again – policy rules and words must be followed up by action. in the words of former norges bank governor hermod skanland : once the authorities have charted a course, they should not embark a different path. national budget for 2003. bis central bankers ’ speeches lessons from the financial crisis – financial stability and supervision chart 14 : household debt. as a percentage of gdp. 2000, 2005 and 2010 i have described how norway differs from other european countries after the financial crisis. while many eu countries are in the economic doldrums and are facing high government debt, norway has made use of its fiscal leeway and has fared well. however, there is one area in which norway differs from other countries in a manner we perhaps do not like : norwegian households are among the most heavily indebted in europe. rising debt and property prices are mutually reinforcing. higher asset prices lead to higher collateral values for loans. easier access to credit also leads to increased purchasing power when property is offered for sale. this increases risk in the financial system. the high level of borrowing, particularly among us households, was an important factor contributing to the financial crisis in autumn 2008. although debt growth has slowed in norway, the level of debt shows no sign of falling. while monetary policy and fiscal policy have been anchored within a long - term, operational framework over the past ten years, there has been no comparable, coherent regulatory system for financial markets. requirements are currently imposed