Norges Bank has explained its interpretation of the Exchange Rate Regulation on several occasions, not least in a letter to the Ministry of Finance dated 21 October 1999, often referred to as the budget submission. When exercising discretion, Norges Bank attaches importance to fulfilling the fundamental preconditions for exchange rate stability. To ensure stability in the exchange rate against the euro, monetary policy instruments must be oriented towards reducing price and cost inflation to the level aimed at by the European Central Bank. At the same time, monetary policy must not in itself contribute to deflationary recessions, as this could undermine confidence in the krone. Hence, there is no conflict between gearing monetary policy instruments towards low and stable inflation and the objective of a stable krone exchange rate over time. In the budget submission, the Bank also provided information about key policy response patterns when price and cost developments and the basis for exchange rate stability are influenced by external factors. Price and cost inflation are influenced by monetary policy through a number of channels. When interest rates increase, it becomes more profitable to save and to postpone consumption until a later date. Interest expenses exceed interest income for households collectively, meaning that a rise in interest rates reduces real disposable income. The value of household wealth decreases, since interest rate rises normally lead to lower house prices and weaker trends in securities markets. Growth in private consumption and fixed investment slows. Lower demand for goods and services may also affect enterprises’ profit margins.
Lars Heikensten: What is happening in the United States and how will it affect us? Speech by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, to the Swedish Shareholders' Association, Malmö, 9 March 2001. *  *  *  First I want to express my thanks for the invitation to speak to you here. It is always a pleasure to visit Malmö at this time of the year; the signs that spring is approaching are more numerous and clearer down here. The current focus for forecasters — around the world, I would say — is the U.S. economy. As usual when activity is turning, opinions among economists differ greatly. This reminds me of the remark someone made to the effect that if you placed all the economists in the world in a long line, they still would not reach a joint conclusion. That I think catches the mood at present among economists, though assessments do seem to be following a pattern. American economists generally appear to be considerably more optimistic than economists with an outside view of the United States. The United States has unquestionably been acting as an economic engine for global growth for almost a decade. It is equally clear that to a large extent it is the U.S. economy’s future path that will steer international economic activity and thereby the conjunctural situation in Sweden. Against this background I shall be considering a number of questions to do with the American economy and outlining some conceivable outcomes.