This will also lead to a change in the real krone exchange rate, so that the expected return on investments in Norway and abroad become about the same. However, over time long-term real interest rates have largely followed international rates, and in line with international developments long-term interest rates in Norway have also fallen markedly. Low risk? Real interest rates abroad are unusually low, and the risk premium is also low. Savers and investors are offered a wide range of investment options. Risk and expected returns are assessed when choosing among the alternatives. The premium that investors require to take risk has fallen considerably in recent months and is now generally low. For example, there is little difference between government bond yields and yields on bonds issued by private enterprises. The extra premium that emerging economies have to pay on loans is also small. Moreover, premiums paid to hedge against future fluctuations in foreign exchange and equity markets are small. The low risk premiums may reflect fairly solid growth in the world economy and a strengthening of corporate profits and financial positions. It seems that credit risks are fairly well diversified in securities markets and international banks appear to be solid. Fewer major negative events have shaken the markets in recent periods. But another explanation may be that low interest rates have prompted investors to take more risk, thereby pushing down risk premiums. In that case, lower premiums reflect an expansionary monetary policy rather than low real risk.
Spending was also increased in response to the economic downturn. We can therefore safely affirm that the fiscal rule has been normative for fiscal policy. In the years following 1997, with strong growth in public expenditure, the fiscal rule pointed to a continued increase in the use of petroleum revenues. We had to expect this growth in spending to lead to deteriorating competitiveness in Norwegian manufacturing, either through higher wages or an appreciation of the krone. With stronger wage growth in Norway than abroad, the competitiveness of Norway’s manufacturing industry has weakened by about 15 per cent since the mid-1990s. Competitiveness is about 5 per cent weaker than the average for the past 30 years. The krone exchange rate has been influenced by high oil and gas prices and prices for other Norwegian export goods. Monetary policy has also influenced the path for Norway’s relative costs, but the nominal value of the krone is about the same as 10 years ago. Strong growth in public expenditure and expectations of moderately higher growth in the use of petroleum revenues now seem to have been factored into the cost level. Over the past 30 years manufacturing has been scaled back in waves. The last wave occurred around the turn of the millennium, but a substantial decline also occurred in the period 1977 to 1984 and from 1987 to 1992. Prior to these periods, the manufacturing sector’s competitiveness deteriorated. The usefulness of a fiscal rule is that it gives weight to long-term considerations when addressing day-to-day economic policy challenges.