National income increased by a little more than 30 per cent in real terms between 2003 and 2007. The real krone exchange rate measures developments in the value of the Norwegian krone, adjusting for inflation differentials between Norway and its trading partners. This provides an indication of the relationship between the level of external and domestic prices, which in turn reflects developments in cost levels. In real terms, the krone has appreciated by about 10 per cent since the mid-1990s, while labour costs in a common currency have risen by close to 30 per cent more than among our trading partners. This may be partly ascribable to the cyclical expansion and the low level of household saving. But most likely the strong krone reflects the substantial improvement in the terms of trade and productivity. Public spending growth is fuelling demand for goods and services and draining labour from the business sector, albeit not faster than planned. Even though the cost level in Norway has increased and is high, there is full employment. Thus, it seems that our business sector will have to live with – and can live with – the real value of the krone and the current cost level unless a possible downturn has a particularly severe impact on the Norwegian economy. BIS Review 18/2008  5  Sharing the benefits There was a fundamental shift in Norwegian economic policy in the 1980s and 1990s. 4 Capital and credit markets were liberalised. It became easier to establish and build up new businesses.
Svein Gjedrem: Economic perspectives Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the meeting of the Supervisory Council of Norges Bank, Oslo, 14 Thursday 2008. Please note that the text below may differ slightly from the actual presentation. *  *  *  Introduction Henrik Wergeland was born 200 years ago. He worked in the vicinity of the central bank in periods. His plays were performed at the Christiania Theatre, which was located at Bankplassen, and as national archivist his office was located at Akershus fortress, a stone's throw from the central bank. Wergeland lived near Grønlia below Ekeberg. He travelled to town by rowing across Bjørvika. He moored his boat near Bekkevold’s pub on Skippergata, which is today known as "Grei Kafé". That is also where he met the proprietor’s daughter, Amelia Sofie, who became his wife. 1 Wergeland wrote a poem “Follow the Call”, which includes a well known verse: “But our world must still be young, Saga of each race must be still merely its cradlesong and its childhood fairy tale. Creatures from the age of chaos […]” 2 Chaos and fear exploded with full force in the financial markets last autumn. We are again witnessing that market participants suffer from a short memory span. Crises, imbalances and bubbles House prices in the US started to fall in 2006.