Monetary policy in turbulent times
Governor Øystein Olsen
CME, 20 September 2012
0 1 2 3 4 5 6 7
0 1 2 3 4 5 6 7
1990 1995 2000 2005 2010 2015
Advanced economies Emerging economies Projections
GDP growth
10-year moving average of annual GDP growth
1). Percent
Yields on 10-year government bonds
0 2 4 6 8 10 12 14 16 18
0 2 4 6 8 10 12 14 16 18
1995 1997 1999 2001 2003 2005 2007 2009 2011
Italy
Germany
France
Portugal
Spain
Central bank balance sheets – stylised
Assets Liabilities
Foreign exchange reserves
Deposits from banks (central bank
reserves) Lending to banks/
traditional supply of
liquidity
Central bank balance sheets – government bond purchases
Assets Liabilities
Foreign exchange reserves
Deposits from banks (central bank
reserves) Lending to
banks/traditional supply
Government bond
purchases
Central bank balance sheets – private sector bond purchases
Assets Liabilities
Foreign exchange reserves
Deposits from banks (central bank
reserves) Lending to
banks/traditional supply
Private sector bond
purchases
Central bank balance sheets – foreign exchange purchases
Assets Liabilities
Foreign exchange reserves
Deposits from banks (central bank
reserves) Extra foreign
exchange reserves Lending to
banks/traditional
supply
Central bank balance sheets
Index. January 2008 = 100. January 2000 – August 2012
0 50 100 150 200 250 300 350 400 450
0 50 100 150 200 250 300 350 400 450
00 02 04 06 08 10 12
Sweden US
Euro area Switzerland UK
Norway1)
Corporate borrowing rates 1)
Percent
0 1 2 3 4 5 6 7 8
0 1 2 3 4 5 6 7 8
2005 2006 2007 2008 2009 2010 2011 2012
Germany Spain
Italy France
TARGET2 balances
In billions of EUR
-1500 -1000 -500 0 500 1000 1500
-1500 -1000 -500 0 500 1000 1500
Dec 02 Dec 04 Dec 06 Dec 08 Dec 10
Germany, Netherlands, Luxembourg and Finland
Greece, Italy, Ireland, Portugal and Spain
GDP growth
10-year moving average of annual GDP growth
1). Percent
0 1 2 3 4 5 6 7
0 1 2 3 4 5 6
7 Advanced economies
Emerging economies
Mainland Norway
Projections
Criteria for an appropriate interest rate path
1. The inflation target is achieved
2. The inflation targeting regime is flexible 3. Monetary policy is robust
“Loss function”:
Criterion 1
Criterion 2
Key policy rate
Percent. 2008 Q1 – 2015 Q4
0 1 2 3 4 5 6 7 8
0 1 2 3 4 5 6 7 8
Criterion 1
Criteria 1&2
Criteria 1,2&3
Household debt burden 1) and interest burden 2)
Percent. 1988 Q1 – 2015 Q4
0 50 100 150 200 250
0 2 4 6 8 10 12
1988 1992 1996 2000 2004 2008 2012
Interest burden (left-hand scale) Debt burden (right-hand scale)
1) Loan debt as a percentage of disposable income adjusted for estimated reinvested dividends for 2000–2005 and redemption/reduction of equity capital for 2006–2015
2) Interest expenses after tax as a percentage of disposable income adjusted for estimated reinvested
