In a different situation such a policy could have undermined confidence, leading to a depreciation of the krone and higher interest rates. Owing to high oil prices, however, the krone was very strong in 1996 and 1997. It may be that the foreign exchange market accepted that Norway was in a situation – with large government budget and current account surpluses – where the country both could and should have transferred resources from the business sector to the public sector. It could be that market participants believed that this transfer of resources would occur with the help of a strong krone exchange rate, which reduces profitability in the business sector. Appreciation pressures mounted and culminated in a reduction in interest rates by Norges Bank in January 1997 in order to counter the sharp strengthening of the krone. If the central bank had not acted, the krone might have appreciated by an even greater margin. This could have given a strong signal to the business sector to move out of Norway. However, in a situation where fiscal policy was not sufficiently tight, the reduction in interest rates increased the risk of an acceleration in price and cost inflation. Then came the fall in oil prices, with an associated erosion of the external account. Income growth for liberal professions had been substantial, wage growth for salaried employees accelerated and the wage and income settlement in 1998 was very generous. This eliminated the basis for the strong krone.
To that end, investments in human capital aimed at improving the quality of the labor force in our country should be intensified and competition should be enhanced through effective regulations and implementations, especially in the goods market. The Competition Authority is one of the main institutional building blocks of the “open economy growth model” implemented in the period after 1980 and is based on strengthening the market economy. Competition policies and price stability, which is the core objective of the Central Bank, are strongly related. In an environment where competition conditions are ensured, monopolistic market behaviors will not be possible. Simplifying the entry and exit of firms to the various  BIS Review 37/2008  1  sectors and increasing transparency are the main factors preventing pricing habits that are based on a high profit margin. Additionally, due to pressures from both domestic and foreign competition, firms choose to implement strategies with the aim of increasing productivity, which in turn triggers innovation and technological development and contributes to the acceleration of the potential growth rate of our country. If firms increase profitability through measures that decrease costs instead of increasing prices, our country can reach higher growth rates in an environment of low inflation. Various instruments can be utilized to establish an effective competition environment in an economy.