An assessment of which tools that might be useful will partly depend on the specific features of the Norwegian credit and financial markets and partly on the shocks that hit our economy. The tools we resort to in a crisis may be less suitable in a normal situation. Gains must be weighed against costs. This brings us to some key interrelated questions: what should the level of ambition for monetary policy be, and how far should the limits of monetary policy be stretched before other components of economic policy must take over? Conventional monetary policy – how much room for manoeuvre is there? Chart: The policy rate in Norway First, a few words on our most important monetary policy instrument – the policy rate. Since the trough at 0.5 percent, the policy rate has been gradually raised to 1.5 percent, reflecting favourable developments in the Norwegian economy. In our September interest rate forecast, the policy rate remains close to today’s level of 1.5 percent for the next couple of years. On the one hand, growth in the Norwegian economy is still solid, inflation is close to the target and capacity utilisation is somewhat above a normal level. On the other hand, there is considerable uncertainty about the global growth outlook. The policy rate path reflects a trade-off between these conditions. Chart: Low policy rates abroad A rate of 1.5 percent is considerably lower than the average level for the policy rate since inflation targeting was introduced in 2001.
(2018) and Kuttner (2018) provide an overview of alternative instruments introduced by the central banks in the US, the UK, Japan and the euro area. They also refer to different estimates of the effect of alternative instruments on financial prices and interest rates, the real economy and inflation expectations. See also Filardo and Nakajima (2018), Hesse et al. (2017) and Haldane et al. (2016). 6 Borio and Zabai (2016). 7 Cf. Borio and Zabai (2016), Filardo and Nakajima (2018) and Hesse et al. (2017). 8 Borio and Zabai (2016). 9 The arrangement allowed banks in Norway to enter into agreements whereby covered bonds could be  temporarily swapped for short-term government securities. 9/9  BIS central bankers' speeches