This labour has to be recruited from the exposed sector, or through the natural increase in the labour force finding its way to the sheltered sector. Over time, the size of the internationally exposed sector will be affected by the portion of the petroleum revenues that is absorbed into the Norwegian economy. The size of the internationally exposed sector is independent of monetary policy. An appreciation of the krone may, nevertheless, affect the speed at which changes occur in the business and industry. To maintain balance in the Norwegian economy, the phasing in of petroleum revenues must be countered by a monetary policy stance that is tighter than it would otherwise have been. This may be accomplished by keeping interest rates higher than they would otherwise have been, or by an appreciation of the krone, or both. A clear monetary policy target is a necessary complement to the fiscal guideline with a view to ensuring reasonable macroeconomic stability. Monetary policy is oriented towards low and stable inflation. The inflation target is set at 2½ per cent. BIS Review 66/2002  1  If evidence suggests that inflation will be higher than 2½ per cent with unchanged interest rates, the interest rate will be increased. If it appears that inflation will be lower than 2½ per cent with unchanged interest rates, the interest rate will be reduced. Inflation in Norway is determined by both domestic and international inflationary impulses. Domestic inflationary impulses are influenced by the state of the Norwegian economy.
Jarle Bergo: Oil revenues, monetary policy and economic cycles Lecture by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), at the Telemark University College, Bø, 13 November 2002. The text below may differ slightly from the actual presentation. The lecture is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 30 October and on previous speeches. *  *  *  Petroleum activities constitute an important part of the Norwegian economy. A sound economic policy and high oil prices have contributed to the highest current account and budget surpluses that have been recorded in any OECD country. In 1998 when oil prices were down to USD 10 per barrel, we also recorded a surplus that came to 4 per cent of GDP measured in terms of government net financial investment. Societies that suddenly gain access to wealth have a tendency to spend the money and then fall into decline. Access to an abundance of natural resources can result in slower growth. The explanation may be that time and resources are spent on grabbing as large a share as possible of the acquired wealth. Historical experience therefore suggests that it is important to have decision-making systems to provide protection against individual groups gaining strong control over Norway’s petroleum wealth. In addition we must maintain and develop incentives to acquire knowledge and engage in innovative work.