Svein Gjedrem: Economic developments and monetary policy in Norway Speech by Mr Svein Gjedrem, Governor of the Norges Bank, at the meeting of the National Council of the Confederation of Norwegian Commercial and Service Enterprises, Oslo, 30 May 2001. *  *  *  Monetary policy objectives and guidelines  The most important objective of monetary policy is to contribute to low and stable inflation. Economic agents should be fairly certain of the future value of money. High and fluctuating inflation impairs the function of prices as an information vehicle. Agreements pertaining to sales and purchases, loans and interest rates are concluded in nominal krone amounts. The tax system is in nominal rates. When the price level displays wide variations, it is difficult to predict the real content of agreements and budgets. Unexpected swings in the price level can easily lead to fluctuations in the real economy and instability in financial and property markets. The experience of our country and that of others in the 1970s, 1980s and 1990s is that periods of high inflation are followed by downturns with high unemployment. High and variable inflation also leads to an arbitrary redistribution of wealth and income. Hence price stability is the best contribution monetary policy can make to economic growth, welfare and appropriate distribution. This spring, the Government and the Storting (Norwegian parliament) issued new guidelines for economic policy.
Continued pressures in the Norwegian economy  1  6  Consensus Forecasts. BIS Review 47/2001  Available labour resources are limited in the Norwegian economy. The labour force participation rate is high. Vacancies are numerous, particularly in the health sector, schools and the construction industry due to a shortage of teachers, nurses, dentists and construction workers. Extensive use of disability and sickness benefits is limiting the supply of labour. Reforms such as contractual pension schemes, which were stepped up through the 1990s, cash allowances for families with small children and an increased number of vacation days this year and next also contribute to reducing the effective labour supply. The country as a whole is experiencing labour shortages, but the differences between regions and industries are considerable. In Eastern Norway, where service industries are very important, unemployment has declined the last year. From 1998 to 2000 alone, employment in private services rose by 26 000 nationwide. In Southern and Western Norway, unemployment rose last year, largely reflecting the decline in manufacturing employment since the beginning of 1999. Unemployment has declined again recently. Employment in the public sector has also increased markedly in recent years. Over the last 30 years, the public sector and private services have laid claim to an increasing share of labour resources in Norway, a trend that will probably continue. BIS Review 47/2001  7  The tight labour market reflects a high activity level in the Norwegian economy. The mainland economy is experiencing an upturn, but growth is low.