Projections for imported price inflation may therefore be said to be characterised more by Knight uncertainty for a period ahead. Monetary policy under uncertainty was one of the many topics discussed in the report Norges Bank Watch 2003, where our policy response pattern and communication were evaluated in the light of the theory of monetary policy under uncertainty. This was useful input and constructive criticism which we will keep in mind in our future work. Norges Bank Watch 2003 points out, for example, that we should make a clearer distinction between additive uncertainty and multiplicative uncertainty. This distinction is most clearly reflected in our economic models. The uncertainty associated with the exogenous variables is called additive uncertainty. Examples of additive uncertainty are add factors in our economic models and other exogenous factors such as fiscal policy and the oil price. Uncertainty about the actual functioning of the economy may, however, lead to multiplicative uncertainty. Multiplicative uncertainty often involves uncertainty about the structural parameters in the model, such as the effect of the interest rate on demand and the exchange rate and the slope of the short-term Phillips curve.
17  I refer here to the concept of “limited access social orders”, see North, D., J. Wallis and B. Weingast (2009). Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, Cambridge University Press. BIS central bankers’ speeches  5  At European level, we need to provide a framework that supports and incentivises the introduction of such national policies. This is the role of economic union in the euro area, the “E” of EMU. I would stress, however, that economic union does not mean defining a single economic model across all countries. On the contrary, its purpose is to create the conditions for each country to identify and develop its comparative advantage. Paradoxically, it is only by encouraging difference – comparative advantage – that the euro area can achieve convergence – that is, a more even distribution of economic outcomes. Avoiding re-nationalisation and protectionism Let me finally address the third lesson learnt from East Asia. Europe needs to avoid protectionist temptations and calls for re-nationalisation. Protectionism and beggar-thyneighbour policies would lead to further losses of welfare at both European and global level. Fortunately, there has been no significant surge in barriers to global trade in recent years – unlike during the Great Depression – thanks to global and regional policy coordination. These efforts remain important. Barriers to trade in goods and services cannot be raised within Europe thanks to our Single Market and competition rules which are enshrined in European laws, but the Single Market can be further enhanced.