Conclusion Interest in the issues I have touched on this morning must not ebb when peacetime is eventually regained. Parochially, there has been massively more public interest in the Bank of England’s financial stability role during the period of turmoil than over the preceding years. But what we all do in peacetime will affect how the next “war” plays out. We must not forget that. Central banks can play a role because they can bring together and synthesise analytical and practical expertise in macroeconomic conditions, financial markets and the financial infrastructure. That synthesis is rather special, and should be at the service of the system as a whole. 4  BIS Review 77/2008
In the early phases of the upturn, output growth primarily reflected a strong increase in the number of person-hours worked partly owing to the marked increase in average working hours when sickness absence fell in 2004. A high level of inward labour migration after EU enlargement in 2004 also contributed to increasing economic capacity. Historically, there has been a close relationship between the change in prices for domestically produced goods and services and the level of capacity utilisation, here measured by the output gap. This relationship broke down in 2006. Surprisingly low inflation through 2006, despite appreciably stronger output and employment growth, may indicate that developments have been influenced by conditions on the production and supply side of the economy. The present economic expansion differs from previous upturns in that inflation has remained low so far despite strong growth and increasing capacity utilisation. There are probably several reasons for this. First, low import prices and high prices for our commodity exports have improved Norway’s terms of trade considerably. Prices for oil and gas, shipping, fish, industrial commodities and engineering products have increased considerably. Moreover, Norwegian importers have gained access to new markets in central Europe and Asia which offer considerably cheaper consumer goods. The terms of trade have improved by about 40 per cent since 2002. A similar situation has not been seen since World War I when earnings in the shipping industry and other export industries were exceptionally high for a period. Second, an ample supply of labour has boosted output growth.