svein gjedrem : monetary policy, securities markets and municipalities address by mr svein gjedrem, governor of norges bank ( central bank of norway ), at the anniversary seminar, kommunalbanken, 30 august 2002. please note that the text below may differ slightly from the actual presentation * * * in my address today i will touch on three themes. first, i will discuss monetary policy and its influence on municipalities ’ financial position, followed by some remarks on the norwegian bond market and kommunalbanken as. i will then conclude with some reflections on the challenges associated with the pension system and the interplay with securities markets. municipalities ’ financial position and monetary policy guidelines for economic policy • fiscal policy : - guideline for use of petroleum revenues : • use real return on petroleum fund • smooth fluctuations in the economy • monetary policy : - inflation target sg kommunalbanken, 30. august 2002 norway ’ s economic policy is based on the guidelines for fiscal and monetary policy. the guideline for fiscal policy states that the use of petroleum revenues over the central government budget shall be equivalent to the expected real return on the government petroleum fund. most of the phasing in of petroleum revenues will take place over the next ten years. with a 4 per cent return on the petroleum fund, the use of petroleum revenues will rise to almost 5 per cent of mainland gdp in 2010. the objective of monetary policy • monetary policy is to be oriented towards low and stable inflation. • the inflation target is set at 2. 5 per cent. sg kommunalbanken, 30. august 2002 monetary policy is oriented towards low and stable inflation. the inflation target is set at 2½ per cent. when monetary policy is geared towards stabilising inflation, it also contributes to stabilising demand and production. low and stable inflation fosters stability in the economy. the inflation target is the nominal anchor for the norwegian economy. low inflation is the objective, and the interest rate is the instrument. monetary policy functions with considerable and variable lags. the current level of inflation does not provide an adequate basis for determining the level at which interest rates should be set today. our analyses indicate that a substantial share of the effect of an interest rate change will occur within two years. two years is therefore a reasonable time horizon for attaining the inflation target. economic agents can act on the assumption that the inflation rate will be close to 2½ per cent over

part of the renewable energy economy. the financial sector has to adapt to climate risk, but does not have effective tools to address the climate issue. it is doubtful whether defining emissions from sectors or individual businesses as unethical will make a difference. the responsibility for measures to combat global warming must rest with the authorities. the solution lies in economic instruments that promote structural change. structural change generates growth a shift in consumption patterns and production methods towards lower emissions will reduce demand for fossil fuels. this can influence oil and gas activities in norway. we have always known that oil and gas activities will be phased out sooner or later. oil and gas are non - renewable resources. a stricter global climate policy may mean that this will occur sooner than foreseen earlier. but norwegian oil and gas production will remain profitable for quite some time. the supply of clean energy is still limited. today, coal accounts for a large share of global energy demand. demand for natural gas may increase as countries move towards a greener economy. in germany, phasing out coal faster than planned is being discussed. norwegian gas can play an important role in a transition phase ( chart 7 ). chart 7 important role for norwegian gas. annual production. standard cubic metre of oil equivalents. in millions. 1970 – 2018 1 ) gas oil 1 ) preliminary figures for 2018. source : norwegian petroleum directorate there is still global demand for oil and gas. if we reduce production on the norwegian shelf earlier than planned, other suppliers are ready to take over. the climate impact of an earlier reduction would therefore be marginal, while the costs to norway would be substantial. norges bank economic perspectives 14 february 2019 the oil industry has been an economic engine for norway for close to 50 years. the revenues from this industry have improved the welfare of today ’ s citizens and the citizens of tomorrow. the spillover effects from the oil sector to the wider norwegian economy are substantial. throughout our country there are oil - related jobs to be found. more than 10 percent of all employed persons in norway are either directly or indirectly working for the oil industry. 3 innovation and skills development in the industry have also benefitted other sectors. the oil industry has been through a demanding period of personnel cuts, cost savings and rationalisation. the restructuring in the industry that was already underway became even more pressing when oil prices collapsed in 2014. today, oil companies are hiring again, and will likely continue to do so in the coming years. but we must be prepared for a