Dear conference participants, it is a great pleasure for me to welcome all of you to the Sixth Norges Bank Monetary Policy Conference. Norges Bank and the Institute for Monetary and Financial Stability are privileged to host this conference, which has attracted the interest of such a distinguished group of international experts.

Given that we are going to talk about inflation targeting, I will take this opportunity to set the stage by summarising the Norwegian experience. Since the beginning of the 1980s there has been a broad international consensus that monetary policy must be geared towards price stability. This paradigm shift also reached Norway, but not until the end of that decade.

The starting point for us in Norway was a high and variable inflation rate of around 8 to 9 per cent combined with frequent devaluations. In the period from 1976 to 1986 the government carried out no fewer than ten de facto devaluations of the krone. The devaluation in 1986 would become the last in the series, however. The government recognised that the repeated devaluations were ineffective; confidence had been lost, and inflation had soared without a fall in unemployment. There was a broad political agreement that Norway should follow the rest of the world.

In the first phase of the new era (see Figure 2.1) Norway pursued a fixed exchange rate against European currencies with no devaluations.