Under the so-called Solidarity Alternative, or wage moderation policy, the social partners were to ensure moderate wage growth and competitiveness. The authorities promised to deliver a stable krone. Structural reforms were implemented to increase growth capacity. Confidence in monetary policy gained a firm footing and inflation and the real interest rate declined. But the regulatory pendulum that swings back and forth was still in motion. In the period up to the turn of the millennium, petroleum revenues were on the rise and fiscal policy came under pressure. The fixed exchange rate regime amplified fluctuations in the economy and the social partners were no longer able to rein in cost growth. The Solidarity Alternative had played its role. Unexpected growth in petroleum revenues also highlighted the importance of designing a long-term government savings plan. We needed a new anchor for both fiscal policy and monetary policy. Chart 5: Inflation. Moving 10-year average and variation in CPI. Per cent. 1980 – 2010 Report No. 29 from 2001 sets out long-term guidelines for economic policy. The division of responsibility was further clarified. Norges Bank was given a clear responsibility for keeping inflation low and stable. The government and the Storting can build on Norges Bank’s response pattern when drawing up annual budgets. They can also take into account that increasing spending via government budgets may trigger an appreciation of the krone.
Pre-crisis, monetary policy in the advanced economies was essentially defined by inflation targets and a key instrument, the interest rate. In parallel, the goal of financial stability was chiefly addressed with microprudential regulation and supervision. This framework was broadly consistent with the goal of economic growth, given that the control of inflation was 3/7  estimated to be the best means for ensuring the economy drew closer to its potential growth. The crisis showed that this framework was no longer valid. The control of inflation, though it remains a necessary condition, is not sufficient to ensure growth; and microprudential regulation was no longer effective, in or of itself, for guaranteeing financial stability. As a result, central banks have adapted their policies, which are now more complex in terms of objectives and instruments. Monetary policy has had to face up to the problem of what is known as the “zero bound” on interest rates. Basically, this is the situation that Keynes coined the “liquidity trap”: interest rates close to zero cease to be an effective monetary policy instrument. This has led to the development of new instruments, so-called “unconventional monetary policy”, which mainly includes quantitative easing, private and public-sector financial asset purchases, and the explanation and signalling of the monetary policy to be applied in the future, namely “forward guidance”. The outcome has been a large increase – four- or fivefold – in the balance sheet of the main economies’ central banks.