euro countries. at the same time, monetary policy must not in itself contribute to a deflationary recession. the regulation ’ s requirement with regard to returning the exchange rate to its initial range * may – if stretched – imply an element of “ parity policy ”. for example, in a scenario with a sharp and prolonged fall in oil prices, the krone exchange rate may remain outside the initial range for a longer period. if norges bank responds by raising interest rates in order to force the krone back to its initial range, monetary policy could lead to a recession that will undermine confidence in the krone. similarly, after an appreciation a situation may arise whereby a movement of the exchange rate back to the initial range may require that interest rates be reduced to such a low level that this results in higher inflation. however, this would weaken the basis for exchange rate stability over time. hence, norges bank cannot with open eyes orient its policy instruments towards triggering higher inflation or a deflationary recession. if a situation arises whereby norges bank is not able to return the exchange rate to its initial range without such consequences, the bank will inform the government authorities that measures other than those available to the central bank are required. the present exchange rate range has more or less prevailed for more than ten years. on the basis of its analyses, norges bank does not find grounds to maintain that this range is not the appropriate one. interplay between policy areas there are considerable differences between norway and other industrial countries in the structure of the economy, the organisation of decision - making processes and the formulation of economic policy. in norway, income and wage determination is fairly centralised ; a number of fora to foster cooperation between the social partners have been established, as has special legislation which makes it easier to resolve labour conflicts than in many other countries. the central government budget is used more actively to stabilise economic developments, partly because the norwegian state has substantially greater economic leeway than other countries. a salient feature of the norwegian economy is the importance of oil revenues, which may fluctuate considerably from year to year. the government petroleum fund was established to serve as a buffer against fluctuations in oil revenues. it dampens the impact of changes in oil prices on the norwegian krone. in recent years, a number of countries have switched to a monetary policy regime based on a target of low inflation. with a passive fiscal policy, monetary policy then in practice assumes a greater role in the stabilis

øystein olsen : the conduct of monetary policy introductory statement by mr øystein olsen, governor of norges bank ( central bank of norway ), at the hearing before the standing committee on finance and economic affairs of the storting ( norwegian parliament ), oslo, 21 may 2013. * * * please note that the text below may differ from the actual presentation. i would like to thank the chairman of the committee and thank you for this opportunity to report on the conduct of monetary policy in connection with the storting ’ s deliberations on the government ’ s financial markets report. my statement here today is based on the bank ’ s annual report, but also on the executive board ’ s assessments for the period to the most recent monetary policy meeting and new information. when i was here last year, the key policy rate had been reduced by 0. 25 percentage point to 1. 5 percent in march. the key policy rate has since been kept unchanged. the key policy rate is low because inflation is low and because external interest rates are at very low levels. the year 2012 was characterised by weak growth among norway ’ s trading partners and turbulence in financial markets. uncertainty about global economic developments, particularly in europe, was high. key rates in many countries were close to zero, and both the european central bank ( ecb ) and the federal reserve announced that key rates would be kept low for a long period. economic developments in many advanced economies remained weak into 2013. global growth is being driven by rapidly growing emerging economies. in the euro area, activity has slowed in several of the largest economies, and there are prospects that the downturn may persist for somewhat longer than previously envisaged. unemployment is high and rising in a number of countries. in spain and greece, unemployment now exceeds 25 percent, and among young people, more than half are jobless. the economic situation is better in the us, but growth is moderate. oil prices have fallen somewhat in the course of spring, but are still at a high level. with key rates close to zero, several central banks have adopted unconventional measures to stimulate growth and support inflation. measures that change the composition and size of a central bank ’ s balance sheet differ from the usual monetary policy operations in that instruments other than the key rate are deployed to influence market rates and economic activity. the ecb and the central banks in the us, the uk and japan have implemented such balance sheet policies to directly influence long - term interest rates and