Fiscal policy has been fairly well adapted to the economic situation over the last decade. The active role it has played in demand management has functioned as an anchor for fiscal discipline. The Government Petroleum Fund is meant to be a buffer against changes in the terms of trade. In other countries this role must be filled by the exchange rate. Chart 12 How does the Norwegian regime differ from inflation targeting? • Co-operation: – Tradition of co-operation between political authorities and social partners – Wage-setting considering employment effects  • Fiscal policy: – Fiscal policy has financial leeway for stabilisation policy – Petroleum Fund buffer against terms of trade variability, not the exchange rate  • Monetary policy: – Different formulation of target – Different institutional setting Legg inn filadresse her  •  Monetary policy in Norway is oriented towards stability of the exchange rate and not an explicit inflation target. The setting of interest rates will more or less be the same. Norges Bank focuses on keeping a low rate of inflation and on avoiding a situation in which monetary policy in itself contributes to a recession that may threaten the fundamental conditions for stability of the krone. •  The institutional set-up for monetary policy in Norway is different. In a country with inflation targeting, the central bank will inform the political authorities if the inflation target is not met.
Conclusions  Oil and gas provide substantial wealth for the Norwegian economy, while fluctuations in the price of oil give rise to variations in the value of this wealth. Norwegian economic policy is organised so as to maintain stability in the face of these variations. Fiscal policy carries a responsibility for stabilising the real economy, while monetary policy is aiming at price stability and preventing a deflationary recession with a view to maintaining exchange rate stability over time. Changes in the price of oil may influence expectations about future economic development in Norway independently of how much of the petroleum revenues are absorbed into the economy in the short run. However, successful use of the Petroleum Fund will provide financial leeway for an active stabilisation policy, the redistribution of wealth between generations and to a large extent protect the Norwegian economy from oil price fluctuations. 15  BIS Review 121/1999