Monetary policy’s role is to ensure low and stable inflation. Experience shows that we cannot reduce unemployment over time by simply accepting somewhat higher inflation. In many countries, including Norway, confidence that inflation will be held at bay has increased because interest rate setting has been delegated to the central bank. We are now in a period where petroleum wealth is being invested in foreign financial assets via the Government Petroleum Fund. The government is to gradually phase in petroleum revenues into the domestic economy by using approximately the expected real return on the Fund. The fiscal rule was established in 2001. Growth in public spending started to accelerate in 1997 from its low level in the mid-1990s. Spending growth has also been fairly strong in recent years, but perhaps somewhat slower than earlier. The fiscal rule for the budget implies that the government can use 4 per cent of the Fund over time. This year, a little more than 6 per cent is being used. The deviation partly reflects an unexpected shortfall in tax revenues in recent years. The government budget deficit is the difference between total revenues and total spending. They each account for about half of total GDP in Norway. Even small deviations from spending and revenue projections can have a major impact on the deficit. Exchange rate changes will also lead to fluctuations in the value of the Petroleum Fund.
Correlations between forecasts and outcomes for the different variables Annual rates of change 1,0  0,8  0,8  0,6  0,6  0,4  0,4  0,2  0,2  Per cent  1,0  0,0  0,0 1  2  3  4  5  6  7  8  -0,2 -0,4 -0,6 -0,8  -0,2  GDP Employed CPIX CPI GDP per employed  -1,0  -0,4 -0,6 -0,8 -1,0  Forecast horizon (quarterly)  Sources: Statistics Sweden and the Riksbank  BIS Review 138/2007  11  Figure 10. Mean error for forecasts, an annual rate Percentage points 0,80  0,80  0,60  0,60  0,40  0,40  0,20  0,20  0,00  0,00  -0,20  -0,20  -0,40  -0,40  -0,60  -0,60  -0,80  -0,80 0  1  2  3  4  GDP  Employment  CPIX  5 CPI  6  7  8  GDP/ empolyment  Forecast horizon (quarterly)  Sources: Statistics Sweden and the Riksbank  Figure 11. Ranking for GDP following year Per cent Note. The Y-axis shows how large a percentage of times analysts have been better than the percentage of analysts as illustrated in the X-axis. In order to see how large a proportion of times the Riksbank has been better than 50 per cent of other analysts, see 50 on the X-axis, then study the red column on the Y-axis.