In the past, growth in public spending was to be reduced or other fiscal policy measures implemented if the labour market was tight and wage growth high. With today's guidelines, it is primarily monetary policy that is tightened in a similar situation. The rise in labour costs is important when Norges Bank assesses the outlook for price inflation and sets interest rates. Excessive wage growth, in both manufacturing and other industries, will affect the internationally exposed sector through two channels. First, high wage growth will in itself reduce earnings and employment. Second, the interest rate will be increased. Normally, this will lead to an appreciation of the krone, with a further reduction in earnings and employment. The manufacturing sector will therefore feel the effects of excessive wage growth to an even greater extent than earlier. Since the new fiscal guidelines, which entail an increased use of petroleum revenues, were introduced during a period with a tight labour market, it was to be expected that the krone would be strong at times. At the same time, it is important to be aware that low wage growth will be of double benefit to the exposed business sector. With wage growth as low as in the mid-1990s, partly as a result of incomes  BIS Review 2/2003  1  policy, and other things being equal, the interest rate would probably have to be set in such a way that the krone fell in value in order to bring price inflation up to 2.5 per cent.
Let me start by stressing a key point: the Eurosystem's highly accommodative monetary policy is already helping to finance the transition thanks to very low interest rates and abundant liquidity. Green investment will have to be very significant, we are aware of this, – with more than EUR 1,000 billion in public and private investment planned as part of the European Green Deal; xi but never has monetary policy been so favourable for achieving this. The greening of the central bank's actions does not therefore require a further easing of monetary policy, but rather a recalibration of its tools. By next September, we will decide within the Governing Council on the conclusions of our "Strategic Review". To contribute to this debate, I would today like to present our ambitions in the form of a simple triptych: forecast, disclose and incorporate climate risk. 2.1  Forecast, and therefore model  First ambition: to deepen our understanding of the effects of climate change not only on prices but also on growth, both over the business cycle and over much longer time horizons. We are not starting from scratch! Much progress has already been made, notably driven by the NGFS. Our models already incorporate, over a three-year horizon, the effects of tax measures to facilitate the transition, such as the carbon tax. However, changes in the behaviour of economic agents are more difficult to take into account, even though - via expectations - their economic consequences could be felt well before their implementation.