Confidence in the Norwegian krone had to be restored in order to avoid persistently high inflation. This required very high interest rates. The fixed exchange rate regime resulted in a gradual reduction in inflation and succeeded in providing the economy with a nominal anchor. However, fine-tuning the exchange rate proved to be an extremely demanding task. We had to abandon the fixed exchange rate regime in December 1992. Important reasons were freer capital flows, deeper financial markets and hence a surge in cross-border capital movements. Initially, however, the krone exchange rate showed little change and quickly found a new range. The exchange rate remained stable until autumn 1996, but gradually began to show wider fluctuations. Developments in international financial markets led to more pronounced fluctuations. And more fundamentally, exchange rate developments no longer provided signals to wage formation and fiscal policy when labour market pressures mounted and incomes policy failed. High petroleum revenues, fiscal slippage and expectations of increased use of petroleum revenues contributed to this. The exchange rate was no longer appropriate as a nominal anchor. Norges Bank therefore placed increasing emphasis on low and stable inflation in its conduct of monetary policy. Petroleum revenues posed particular challenges to stabilisation policy. It became increasingly challenging to smooth cyclical fluctuations by means of fiscal policy. The pressure on fiscal policy made it appropriate to tie oneself to the mast to a further extent to protect petroleum revenues from special interest groups.
Thank you for your kind attention. 2015 U.S. Monetary Policy Forum The Equilibrium Real Funds Rate: Past, Present and Future  4  BIS central bankers’ speeches