Petroleum investment,  3  Svensson, L.E.O. (2005): “Further developments of inflation targeting”. Memo to Sveriges Riksbank’s conference: “Inflation targeting: implementation, communication and effectiveness”10 – 12. June 2005. 4  BIS Review 80/2006  favourable prices in important export markets and a strong upturn in the world economy have also contributed to solid growth in the Norwegian economy. So far in the cyclical upturn, the mainland economy has grown by an average of close to 4 per cent annually. Although the underlying rise in consumer prices has picked up from its trough two years ago, it remains moderate and well below the inflation target, even three years into this cyclical upturn. The global economy is now in the strongest upturn since the early 1970s. Developments are particularly favourable in Asia, and the situation in a number of countries in Europe appears to be improving. Growth in the US has been high for a long period, but has declined somewhat so far this year. There are prospects that a weaker US housing market may lead to increased household saving and lower consumer demand. The effect of these developments on the global economy will depend on the scale and timing of the correction. International equity markets have stabilised following a turbulent period in May and have edged up through the summer. Norges Bank’s assessment is that global growth will abate somewhat from 2006 to 2007, but will remain solid. However, many observers have pointed out that the risk of weaker developments may have increased somewhat recently.
In March 2001, the fiscal rule and new guidelines for monetary policy were introduced. The fiscal rule implies that the central government budget deficit shall be equivalent over time to the expected real return on the Fund, quantified as 4 per cent. The operational target of monetary policy as defined by the Government is inflation of close to 2.5 per cent over time. This establishes a clear distribution of responsibilities among the different components of economic policy. Monetary policy steers inflation in the medium and long term and can also contribute to smoothing swings in output and employment. The inflation target provides economic agents with an anchor for their decisions concerning saving, investment, budgets and wages. Fiscal policy – growth in public expenditure – influences the krone and the size of the internationally exposed business sector in the medium term. Government expenditure and revenues must be in balance in the long term. Wage formation, the structure of the economy and incentives determine how well and how efficiently we utilise our labour resources and other economic resources. BIS Review 80/2006  1  The transition to inflation targeting in 2001 may have appeared at that time, and in Norway, to be a transition to a new and unfamiliar monetary policy system. But today’s monetary policy system springs from an historical recognition of what monetary policy can in fact achieve. In collaboration with the Norwegian School of Economics and Business Administration, Norges Bank has compiled price data from the mid-1600s onwards.