Trade liberalisation, political changes, technological advances, and a sharp reduction in transaction costs have fuelled a globalisation process that seems to have accelerated over the last 15-20 years. As a result, cross-border flows of goods, services and capital are growing at a markedly faster pace than world production. Few countries are benefiting as much as Norway – and losing as little – in the current environment of freer trade and increased cross-border labour mobility. Prices for goods we import are falling in relation to prices for goods we export. Norway’s terms-of-trade are improving. The Norwegian economy has experienced a strong positive income shock. Real national disposable income will increase by 25-30 per cent in the period from 2003 to 2006. The impact of the rise in oil and gas prices is particularly strong, but the terms-of-trade gains for the mainland economy have also been high. The situation in Norway differs from that of our Nordic neighbour countries. Sales of Swedish and Finnish high-tech products are growing strongly in volume terms, but prices are falling. Denmark has a diversified business sector, which is overall moving on a steady path. The terms-of-trade gains partly stem from a sharp rise in prices for oil, gas and other commodities. Strong global economic expansion in combination with rapid production growth in China, India and other newly integrated economies has led to a substantial rise in demand.
See also Levin, Andrew T., Fabio M. Natalucci and Jeremy M. Piger (2004), “The Macroeconomic Effects of Inflation Targeting,” Federal Reserve Bank of St. Louis Review, Vol. 86, pp. 51-80. 8  See, for example, Stock, J.H. and M.W. Watson (2003), “Has the business cycle changed? Evidence and explanations”, in Monetary policy and uncertainty: Adapting to a change in economy, Federal Reserve Bank of Kansas City. 6  BIS Review 43/2005  Globalisation, increased trade and at times strong growth in productivity may have made the trade-offs easier. It is possible that the costs of holding inflation at bay have been reduced.9 It appears that the short-term trade-off between inflation and unemployment has changed in Norway as well.10 Whereas a given rise in unemployment resulted in a relatively small reduction in inflation in the 1970s and 1980s, the gain in the form of lower inflation was far greater in the 1990s. This may be due to a more successful monetary policy and supply-side conditions in the economy, including wage determination. Inflation targeting has proved to be a sound system and may be particularly well suited for small and medium-sized open economies. A topic currently being discussed by academia and central banks is whether and how monetary policy should contribute to stability in the financial system. Price stability and financial stability often require the same medicine. For example, periods of strong growth in demand for goods and services will usually result in both higher inflation and increased asset prices. Both considerations may imply a tighter monetary policy.