A deeper market reduces transaction costs, and it is easier to find counterparties. This has provided companies with greater scope for hedging against foreign exchange risk. The use of instruments that reduce the risk associated with a floating krone is also increasing in Norway. A considerably larger portion of credit in other countries is now channelled via the bond market. Less risk is being accumulated in banking systems. The development of new markets and instruments, for example credit derivatives, has also led to a broader risk spread than earlier. The improved diversification of risk is probably one of the reasons that world financial markets have coped with the stock market decline and the accounting scandals with limited damage to the wider economy. This is probably one reason why the downturn following the stock market decline in 2000 was considerably less pronounced than earlier downturns. The new instruments spread risk, but do not eliminate it. Financial markets have become highly complex. This alone entails an operational risk, which is a challenge to participants and the supervisory authorities. 2  BIS Review 11/2004  A shift in the international division of labour Increased trade promotes growth and lays a basis for prosperity. A number of Asian countries have experienced strong, export-led growth - Japan from the 1950s and several countries in Southeast Asia from the 1960s. Chart 3.
Thus, it is possible that the level of output that is consistent with stable inflation will increase. Credit developments are giving ambiguous signals to our interest-rate setting. The interest rate can be used to reduce credit demand. At present - with low interest rates abroad and a close link between domestic interest rates and the krone - a tighter monetary policy will restrain credit demand primarily because job security would be reduced. When inflation gradually moves up from a very low level, we can begin to move towards a more normal short-term interest rate level in Norway. This may counter the emergence of excessive pressures on domestic resources in the medium term. Interest rate developments in other countries may also have a considerable impact on the krone and hence on interest rates in Norway. When inflation is low - and as low as it is now - it is appropriate to place considerable emphasis on pushing up inflation. Therefore, we are particularly vigilant with regard to consumer price developments. BIS Review 11/2004  19