7  Simulations by Dorich, Labelle, Lepetyuk and Mendes (2015) using a model for the Canadian economy indicate that a target of 2 per cent leads to a result that is almost as good as if the target were raised to 3 or 4 per cent, given that the policy rate can be complemented by quantitative easing as well as active and credible supporting communication. BIS central bankers’ speeches  3  Major direct impact of interest rate changes makes Swedish CPI unique This direct impact of interest rate changes on inflation is quite unique to Sweden. The reason for the effect is that we include household mortgage costs in the CPI in a slightly different way than most other countries with inflation targets. More specifically, we attempt to measure households’ costs for living in an owner-occupied property, where interest expenditure is an important component.8 The CPI is calculated according to roughly the same principles in Canada, for example, but in practice the interest rate changes have a much smaller impact on the CPI there than here in Sweden.9 In Australia and New Zealand, interest rate changes also previously had a major direct impact on the CPI, but the method for calculating CPI changed in both countries at the end of the 1990s in a way that eliminated such effects.10 They now apply a method which is principally based on following price developments of new housing, a so-called net acquisition approach.
Companies report a decline in production, employment and orders for both the export and domestic market. Many companies have moved abroad or are planning to move all or parts of their production out of Norway. In recent years, the shipbuilding and engineering industries have sustained the activity level in Norwegian manufacturing. Shipyards experienced a sharp increase in new orders before end-2000 prior to the elimination of support to the shipbuilding industry in Norway and many European countries. The level of new orders has since then been very low, and the order backlog is nearly exhausted. A sharp increase in petroleum investment could provide positive growth impulses to the offshore-related industry. The demand impulses from petroleum investment to the mainland economy may, however, be weaker than has been the case earlier. Construction and installations with a high import content will account for a large share of the increase in investment from 2002 to 2003. Due to the high cost level in Norway, a growing number of contracts are also being awarded to foreign companies. At the same time, Norwegian shipyards are increasingly using foreign subcontractors in low-cost countries. This is having an impact on the Norwegian engineering industry. Many service industries have had to adjust capacity in pace with changes in operating parameters. Investment in service sectors has fallen sharply, and is expected to continue to fall. There is considerable excess capacity in the commercial building market.