The conference speeches and remarks were published by BIS on 19 October 2026  as a BIS Paper 176 "Central banks and macro-financial stability in a fragmented global economy" .

Let me begin by thanking the BIS for the invitation to participate in this panel. I am very pleased to be here and to take part in this discussion.

I will make three main points.

• First, as many others have noted, geoeconomic fragmentation and other structural changes could mean that we will see larger and more frequent shocks going forward. In such an environment, monetary policy needs to respond decisively to shocks to prevent persistent deviations from target and keep inflation expectations well anchored.
• Second, while the importance of well anchored inflation expectations is widely recognised, we still need to understand them better – how expectations are formed, how they influence behaviour and when they should worry us.
• Third, even if shocks become larger and more frequent, their macroeconomic impact may change over time. For example, the effect of energy shocks on activity appears to have declined in many economies. This underscores the importance of a more granular understanding of how different supply shocks – such as energy shocks – transmit through the economy.

Let me turn to my first point. Shocks may arise from geopolitical tensions, trade restrictions or disruptions in energy markets. But other forces are also at work. Climate change, the transition to a low-carbon economy and artificial intelligence may all reshape economies in the years ahead – yet the speed and scale of these changes remain highly uncertain.

Greater macroeconomic volatility does not in itself call for a different monetary policy reaction function. But while simple policy rules are often linear, the costs of deviations from our objectives are not. Larger shocks may therefore require a stronger policy response than such rules would suggest.

Similarly, in a situation where inflation has been above target for some time, further increases may warrant a more forceful policy response than when inflation is close to target.

However, if higher inflation reflects an adverse supply shock, the central bank must balance the need to bring inflation back to target against the risk of unnecessarily weakening activity and employment. The trade-off becomes even more challenging if unemployment is already high – or has been high for some time.

Another complication is that shocks are rarely neatly separable. They often reflect a combination of supply and demand forces. Even with hindsight, the relative roles of these forces in the post-pandemic inflation episode remain contested. Moreover, with shocks likely to become more frequent, distinguishing between the different shocks affecting the economy is unlikely to become any easier. The key task, however, remains to ensure that inflation expectations are well anchored.

That brings me to the role of inflation expectations, and to my second point: we need to understand inflation expectations better. People in this room have helped us make real progress, but further work is needed. We need to improve our understanding of how expectations are formed, how strongly they affect price and wage-setting, which movements we should pay attention to – and which ones we may safely look through – and, ultimately, whose expectations matter most. In small open economies, understanding how exchange rate movements shape inflation expectations is especially important.

In Norway, we only have survey-based direct measures of inflation expectations, and currently the signals are somewhat mixed. The surveys suggest that economists and employee and employer organisations expect inflation to be close to pre-pandemic levels in the long term, while expectations among households and business leaders remain elevated.

Turning to my third point, in recent months much of central banks’ attention has focused on the conflict in the Middle East, and in particular on the implications of the closure of the Strait of Hormuz for energy markets and the global economy.

In many economies, disruptions to global oil supply push inflation higher while weighing on activity. However, the magnitude and transmission of these effects differ across countries and may change over time.

Recent empirical work by staff at the Central Bank of Norway finds that energy price shocks tend to raise inflation and weigh on activity in advanced economies, but that the negative effect on GDP has diminished over time.^[1]  This probably reflects lower energy intensity, shifts in the energy mix and, in some cases, greater energy self-sufficiency.

Norway is different. The analysis finds no significant impact on mainland activity from higher oil prices. As in other countries, higher energy prices raise costs for households and firms in the short term, while weaker demand abroad can hurt non-oil exporters.

But higher oil prices can also spur petroleum investment, supporting activity in the oil services industry – an important part of the mainland economy – and pushing up wage growth. In addition, oil companies’ revenues will rise, but a large share accrues to the government through the special petroleum tax regime. Under the fiscal rule, most of these revenues are saved. For Norway, higher oil prices therefore resemble less a pure adverse supply shock and more a combination of an adverse supply shock and a positive demand shock.

Past experience is an imperfect guide to the future. In economies with substantial energy production, where higher energy prices can support activity and incomes, the case for tightening policy to guard against second-round effects on inflation may be stronger than in major energy-importing economies. This perspective has also informed our recent policy deliberations in Norway.

In May, the Monetary Policy and Financial Stability Committee raised the policy rate from 4.00% to 4.25%, and we have indicated that it will likely be necessary to raise the policy rate further at one of the forthcoming meetings. In the current situation, where inflation has been above target for a prolonged period, we are particularly vigilant when we see signs of rising inflation pressures.

Let me conclude. A more volatile world does not alter the core task of monetary policy: to maintain confidence in the inflation target. But it does make that task more demanding. It requires decisive action when needed, a deeper understanding of expectations and close attention to how the macroeconomic effects of shocks evolve over time.

[1]  The analysis is described in a box in Monetary Policy Report 2/2026.