In Search of an Anchor

Abstract

This chapter details how, in 1993, Norges Bank argued in favour of supplementing the fixed exchange rate target, and in 1997 in favour of replacing it with an inflation target, with a view to maintaining inflation at a low and stable level. The introduction of an inflation target provided Norges Bank with greater scope for the exercise of independent judgement. Controversial increases in the policy rate in 2000 and 2002 demonstrated that Norges Bank was willing to use its increased independence. Moreover, amendments to the Norges Bank Act in 2003 weakened the scope of action available to the government and parliament to influence the bank’s decisions, and the Executive Board largely became a council of economic experts. In addition, Norway’s slightly inefficient central bank organization underwent major changes, with extensive outsourcing of non-core tasks, as defined by the new guidelines.