The specific monetary policy response adopted depends on a number of factors, some being immediately relevant for monetary policy, others only in the long term. As soon as new tariffs are announced, the question arises as to whether they are temporary or permanent, or whether they could even lead to a raft of protectionist measures. One-off increases in duties that are merely temporary in nature will similarly take only a temporary toll on the economy, and thus do not necessarily require any monetary policy reaction. What is significant in this context is the expectations of producers and consumers. Longerterm inflation expectations in particular are of pivotal importance for the monetary policy stance. Central banks have to respond differently depending on how economic actors adjust their expectations to take account of the higher tariffs. If inflation expectations are well anchored, that is to say very stable, central banks can choose to ignore temporarily higher inflation, and can thus concentrate fully on the negative growth effects triggered by protectionism. After all, if inflation expectations are well anchored, higher prices should not lead to a damaging wage-price spiral. Inflation would come back down again sooner or later. However, if consumers and producers expect the trade war to result in steadily rising prices, this would fuel upward inflationary pressure over the long term. In this case, monetary policy would have to be tightened to address the higher inflation expectations. The way in which exchange rates react to higher tariffs worldwide is also highly dependent on the expectations of economic actors.
From 1986 to 1992 Norway had a fixed exchange rate system with a defined central rate with fluctuation margins. This system was abandoned in 1992 after extensive speculation against the krone during the period of unrest in European exchange markets. Following the decision to allow the krone to float on 10 December 1992, the guidelines for monetary policy were revised. Monetary policy was subsequently oriented towards exchange rate stability, but without stipulating a central rate with fluctuation margins. The krone depreciated slightly immediately after the crisis, but then remained stable without extensive use of Norges Bank’s instruments. Since 1996, the exchange rate has fluctuated more widely. There may be several reasons for this. During part of this period, the government budget has not contributed sufficiently to smoothing growth in domestic demand and production. Wage inflation in 1997 and  BIS Review 121/1999  6  1998 was higher than in other countries. Turbulence in international financial markets has also had an important contagion effect on the krone. In addition, oil revenues have fluctuated, which may have affected investors’ expectations regarding future developments in the Norwegian economy.