Øystein Olsen: Monetary policy strategy - from mandate to decisions

Speech by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the Centre for Monetary Economics (CME) / BI Norwegian Business School, Oslo, 20 October 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Accompanying charts to speech: https://www.bis.org/review/211112f_slides.pdf

Introduction

The main task of monetary policy is to maintain monetary stability. How that task is carried out has varied over the years. Today's monetary policy regime in Norway – inflation targeting – will this year have been in operation for 20 years. The regime has long since overcome its teething problems and is now beyond its adolescence. But that does not mean it has found its final form. From time to time, we must pause and reflect, as was the case when a new central bank act and a new monetary policy regulation were drawn up. The new mandate has been in effect since March 2018 and reflects among other things our experience with inflation targeting so far.  

Chart: From mandate to decision

Norges Bank's monetary policy mandate is to ensure low and stable inflation, contribute to high and stable output and employment while seeking to mitigate a build-up of financial imbalances. But what does the formulation of the objectives entail, and how can we strike the right balance between these potentially conflicting objectives? There are no unequivocal answers to these questions.

The transition from mandate to concrete decisions requires a framework for monetary policy discussions and assessments, that is to say a strategy that can guide us in how we should react to different challenges and shocks.