Norway’s Road to Inflation Targeting: Overcoming the Fear of Floating

We review developments in monetary policy and exchange rate regimes in Norway since the Bretton Woods system collapsed. Norway has traditionally had a monetary policy regime geared towards exchange rate stability. The long history with fixed exchange rates as "normalcy" may be one factor which explains the rather late transition to inflation targeting in Norway. This "fear of floating" may seem hard to explain today. We look at five episodes, in 1992, 1998, 2008, 2014 and 2020, respectively, through the lens of the prevailing monetary regime in real-time. What if we had reacted "as if" under the opposite regime?