Jarle Bergo: Monetary policy and its role in economic policy Address by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), at the Confederation of Vocational Unions, Oslo, 7 February 2003. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 22 January and on previous speeches. Please note that the text below may differ slightly from the actual presentation. *  *  *  The objective of monetary policy is to ensure nominal stability. There were wide fluctuations in the Norwegian economy in the 1970s and 1980s. Economic developments were marked by high and variable inflation. Inflation accelerated in the beginning of the 1980s and it took a long time before it fell. The absence of a nominal anchor was one of the main reasons behind these pronounced swings in the Norwegian economy. With a policy of low interest rates and devaluations, inflation took root. Nominal interest rates were kept at a low level even though inflation and the value of tax-deductible interest expenditure rose. Frequent devaluations from 1976 were not able to prevent a decline in the manufacturing sector. On the contrary, they proved to be self-reinforcing. The wide fluctuations culminated in a credit boom in the mid-1980s, followed by a deep recession and high unemployment towards the end of the 1980s.
BIS central bankers’ speeches  9  separate policy committees with separate objectives and instruments but, especially given the overlap of some committee members, with full information on which policy is being conducted in each area. This is also natural, as financial stability has a longer cycle and thereby needs less frequent decision-making than monetary policy. The well-functioning relationship between separately conducted monetary policy and fiscal policy in Sweden can, in my opinion, serve as a model for how the relationship between monetary policy and financial-stability policy should be. If one mixes together monetary policy and financial stability, it also becomes more or less impossible to evaluate monetary policy. Then an overly tight monetary policy can be blamed on an endeavour to maintain financial stability. Inflation and unemployment in the longer run Average inflation has undershot the target If the Riksbank succeeds in stabilising inflation around the target and unemployment around a sustainable rate, average inflation should be in line with the target over a longer period of time. Indeed, “without prejudice to the price stability objective” can be seen as making sure that average inflation over a longer period of time is close to 2 per cent. But during the period 1997–2011 average CPI inflation in Sweden was 1.4 per cent, measured using real-time data. 11 One cannot of course expect average inflation to have been exactly on target over the last 15 years.