Øystein Olsen: Monetary policy and wealth management in a small petroleum economy Speech by Mr Øystein Olsen, Governor of the Norges Bank (Central Bank of Norway), at the Harvard Kennedy School, Cambridge, USA, 9 April 2013. *  *  *  Please note that the text below may differ from the actual presentation. Charts in pdf-format  Introduction I am delighted to be here at the Harvard Kennedy School, and I really appreciate this opportunity to talk to you. My topics are Norwegian monetary policy and the central bank’s management of Norway’s oil fund, the Government Pension Fund Global. I will begin with some background on the macroeconomic policy framework in Norway, and why we believe it works well. A rules-based approach was adopted after two turbulent decades of boom-bust economic cycles. The path towards the current regime was developed and supported by successive governments in the 1990s and early 2000s as it gradually came into place. Since 2001, the operational target of monetary policy has been annual consumer price inflation of around 2.5 percent over time. With growing petroleum revenues, asset management has also become one of Norges Bank’s main tasks. Both in our conduct of monetary policy and in asset management, transparency is a guiding principle. I will explain how we see ourselves as a global financial investor, and elaborate on the main elements of our investment strategy.
You will discuss it extensively today in two panels, moderated by Wim Boonstra and Servaas Deroose. I am looking forward to listening to your views on the matter. However, I would briefly refer to three ideas. First of all, the NBR’s approach to euro adoption is a balanced one. On the one hand, we are fully aware that a higher degree of real convergence is needed – at least 70–75 percent of the Eurozone average in terms of GDP per capita at PPP. Otherwise, we would be insufficiently developed and, therefore, vulnerable to asymmetric shocks and unable to synchronise our business cycle with that of other euro area economies. On the other hand, however, a high enough level does not mean that we are so ambitious as to aim for a convergence level of 90% of the Eurozone average or a level equal to that of Germany (as is the case with certain approaches in Hungary or Poland). And, equally important, regardless of how high one sets its targets, it is essential to preserve the pace of this process: once steps forward have been made, we may not stop or go back. In order to successfully adopt the euro, one should be a marathoner rather than a sprinter. I would like to say that the Latin saying festina lente is perfectly suitable in the case of the NBR’s approach: hurrying in a slow manner on the convergence path means achieving a sustainable pace in the medium and long run.