Svein Gjedrem: Monetary policy in Norway Lecture by Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the Norwegian School of Economics and Business Administration, Bergen, 17 October 2002. The text below may differ slightly from the actual presentation. The references for the speech can be found on the Norges Bank’s website. *  *  *  A year and a half ago, the Government and the Storting adopted new guidelines for economic policy in Norway. The guidelines outline a medium-term strategy for the use of petroleum revenues over the government budget. Government petroleum revenues are transferred to the Government Petroleum Fund. The guidelines provide for the use of the expected real return on the Fund, i.e. 4 per cent of the Fund’s market value each year. As the Fund’s market value grows, so does its return. A gradual increase in the use of petroleum revenues ensures greater stability than a rapid withdrawal. The Government laid down a new operational mandate for monetary policy at the same time. Norges Bank shall set the key interest rate with a view to maintaining low and stable inflation. The inflation target is set at 2½ per cent. The responsibility for implementing monetary policy is delegated to Norges Bank pursuant to the Norges Bank Act and appurtenant regulation. Norges Bank sets the interest rate on the basis of our understanding of the regulation.
See V. Ramey (2019), «Ten Years After the Financial Crisis: What Have We Learned from the Renaissance in Fiscal Research?», Journal of Economic Perspectives, vol. 33(2), pp. 89-114, for a review of the existing evidence. Nevertheless, the estimates are subject to a particularly high degree of uncertainty. Thus, for instance, A. Abiad et al. (2016), The macroeconomic effects of public investment: Evidence from advanced economies, Journal of Macroeconomics 50: 224240, estimates a public investment multiplier of 1.4 after four years for a group of advanced economies. Further, the estimated value could nearly double if the investment is made in highly efficient projects or during periods of low economic growth. Conversely, other studies find that the public investment multiplier cannot, in the short term, exceed a value of 0.6, especially in cases of short-run fiscal stimuli (see M. Alloza and C. Sanz (2020), Jobs Multipliers: Evidence from a Large Fiscal Stimulus in Spain, forthcoming in the Scandinavian Journal of Economics). 9 This multiplier effect largely depends on the degree of complementarity between public and private investment. See Box 5.2 of the Annual Report 2019 of the Banco de España for a detailed analysis of the channels through which public investment supports medium and long-term growth. One of the channels accounting for the high public investment multiplier, even in the short term, rests on the idea that, as it is more powerful in the medium and long term, rational agents consider it in their decisions.