Hilde Christiane Bjørnland

Arbeidsnotater, finansdepartementet p. 77-83

Samfunnsøkonomen p. 40-41

Handelshøyskolen BI

Our analysis suggests; they do not! To arrive at this conclusion we construct a real-time data set of interest rate projections from central banks in three small open economies; New Zealand, Norway, and Sweden, and analyze if revisions to these projections (i.e., forward guidance) can be predicted by timely information. Doing so, we find a systematic role for forward looking international indicators in predict- ing the revisions to the interest rate projections in all countries. In contrast, using similar indexes for the domestic economy yields largely insignificant results. Furthermore, we find that revisions to forward guidance matter. Using a VAR identified with external instruments based on forecast errors from the predictive regressions, we show that the responses to output, inflation, the exchange rate and asset returns resemble those one typically associates with a conventional monetary policy shock.

The International Economic Forum of the Americas

Samfunnsøkonomen 129(2) p. 22-29

Gyldendal Akademisk

Third IMF Statistical Forum

19th International conference in Computing in Economics and Finance (CEF)

Reform Capacity and Macroeconomic Performance in the Nordic Countries

NHO Hordalands Årskonferanse

Norges Bank Working Paper

Handelshøyskolen BI

Traditional studies of the Dutch disease do not typically account for productiv- ity spillovers between the booming energy sector and non-oil sectors. This study identifies and quantifies these spillovers using a Bayesian Dynamic Factor Model (BDFM). The model allows for resource movements and spending effects through a large panel of variables at the sectoral level, while also identifying disturbances to the real oil price, global demand and non-oil activity. Using Norway as a repre- sentative case study, we find that a booming energy sector has substantial spillover effects on the non-oil sectors. Furthermore, windfall gains due to changes in the real oil price also stimulates the economy, but primarily if the oil price increase is caused by global demand. Oil price increases due to, say, supply disruptions, while stimulating activity in the technologically intense service sectors and boosting gov- ernment spending, have small spillover effects on the rest of the economy, primarily because of reduced cost competitiveness. Yet, there is no evidence of Dutch disease. Instead, we find evidence of a two-speed economy, with non-tradables growing at a much faster pace than tradables. Our results suggest that traditional Dutch dis- ease models with a fixed capital stock and exogenous labor supply do not provide a convincing explanation for how petroleum wealth affects a resource rich economy when there are productivity spillovers between sectors.

NHD 25 år

Valutaseminaret, Soria Moria

Allied Social Science Associations (ASSA) annual meeting in San Diego

23rd Annual Meeting of the Midwest Econometrics Group

CME seminar på BI

23rd Annual Meeting of the Midwest Econometrics Group (MEG)

CME Working Paper

Norsk økonomi går godt. En viktig grunn til dette er petroleumsnæringens bidrag til økt produktivitet i resten av økonomien. Men flere varsellamper blinker. Den senere tid har produktivitetsveksten vært avtagende. Høyere oljepriser har ført til økte lønnskostnader, som igjen har svekket konkurranseevnen. Det er ikke sikkert at vi kan regne med like gunstig utvikling det neste tiåret. Trolig er det først da vi virkelig får en test på om vi er immune mot Hollandsk syke.

Senior Management Council meeting DNV

Seminar series

Handelshøyskolen BI

Do central banks respond to exchange rate movements? According to Lubik and Schorfheide (2007) who estimate structural general equilibrium models with monetary policy rules, the answer is "Yes, some do". However, their analysis is based on a sample with multiple regime changes, which may bias the results. We revisit their original question using a Markov switching set up which explicitly allows for parameter changes. Fitting the data from four small open economies to the model, we find that the size of policy responses, and the volatility of structural shocks, have not stayed constant during the sample period (1982-2011). In particular, central banks in Sweden and the UK switched from a high response to the exchange rate in the 1980s and early 1990s, to a low response some time after in ation targeting was implemented. Canada also observed a regime change, but the decline in the exchange rate response was small relative to the increase in the response to in ation and output. Norway, on the other hand, did not observe a shift in the policy response over time, as the central bank has stayed in a regime of high exchange rate response prior and post implementing in ation targeting.

Åpen høring i Stortingets finanskomite om Perspektivmeldingen

Foredrag på NHOs årskonferanse 2012.

European Central Bank conference on energy and the macroeconomy

Handelshøyskolen BI

We analyze the importance of demand from emerging and developed economies as drivers of the real price of oil over the last two decades. Using a factor-augmented vector autoregressive (FAVAR) model that allows us to distinguish between different groups of countries, we find that demand from emerging economies (most notably from Asian countries) is more than twice as important as demand from developed countries in accounting for the fluctuations in the real price of oil and in oil production. Furthermore, we find that different geographical regions respond differently to oil supply shocks and oil- specific demand shocks that drive up oil prices, with Europe and North America being more negatively affected than emerging economies in Asia and South America. We demonstrate that this heterogeneity in responses is not only attributable to differences in energy intensity in production across regions but also to degree of openness and the investment share in GDP.

Conference on monetary and fiscal policy in Nordic countries

Foredrag på Solamøtet 2012.

Western Economic Association, San Francisco, July 2012

Handelshøyskolen BI

We analyze the role of house and stock prices in the monetary policy transmission mechanism in the U.S. using a structural VAR model. The VAR is identifed using a combination of short-run and long-run (neutrality) restrictions, allowing for contemporaneous interaction between monetary policy and asset prices. By allowing the interest rate and asset prices to react simultaneously to news, we find different roles for house and stock prices in the monetary transmission mechanism. In particular, following a contractionary monetary policy shock, stock prices fall immediately, while the response in house prices is much more gradual. However, the fall in both house prices and stock prices enhances the negative response in output and inflation that has traditionally been found in the literature. Regarding the systematic response in monetary policy, stock prices play a more important role in the interest rate setting in the short run than house prices. As a consequence, shocks to house prices contribute more to GDP and inflation fluctuations than stock price shocks.

Dagens næringsliv

Handelshøyskolen BI

Norges Bank

Handelshøyskolen BI

This paper bridges the new open economy factor augmented VAR (FAVAR) studies with the recent findings in the business cycle synchronization literature emphasizing the importance of regional factors. That is, we estimate and identify a three block FAVAR model with separate world, regional and domestic blocks and study the transmission of both global and regional shocks to four small open economies (Canada, New Zealand, Norway and UK). The results show that foreign shocks explain a major share of the variance in all countries, most so shocks that are common to the world. However, regional shocks also play an important role, explaining more than 20 percent of the variance in the variables. Hence in small open economies, the world is not enough. The regional factors impact the four countries differently, though, some through trade and some through consumer sentiment. Our findings of a strong transmission of both global and regional shocks to open economies are in sharp contrast to the evidence from recently developed open economy DSGE models.

Handelshøyskolen BI

Handelshøyskolen BI

Handelshøyskolen BI

We develop a system that provides model-based forecasts for inflation in Norway. We recursively evaluate quasi out-of-sample forecasts from a large suite of models from 1999 to 2009. The performance of the models are then used to derive quasi real time weights that are used to combine the forecasts. Our results indicate that a combination forecast improves upon the point forecasts from individual models. Furthermore, a combination forecast out-performs Norges Bank's own point forecast for inflation. The beneficial results are obtained using a trimmed weighted average. Some degree of trimming is required for the combination forecasts to out-perform the judgmental forecasts from the policymaker.

The 30th Annual International Symposium on Forecasting

Handelshøyskolen BI

Norges Bank

We analyse the role of house prices in the monetary policy transmission mechanism in Norway, Sweden and the UK using structural VARs. A solution is proposed to the endogeneity problem of identifying hocks to interest rates and house prices by using a combination of short-run and long-run (neutrality) restrictions. By allowing the interest rate and house prices to react simultaneously to news, we find the role of house prices in the monetary transmission mechanism to increase considerably. In particular, house prices react immediately and strongly to a monetary policy shock. Furthermore, the fall in house prices seem to enhance the negative response in output and consumer price inflation that has traditionally been found in the conventional literature. Moreover, we find that the interest rate respond systematically to a change in house prices.

Handelshøyskolen BI

This paper analyzes how monetary policy responds to exchange rate movements in open economies, paying particular attention to the two-way interaction between monetary policy and exchange rate movements. We address this issue using a structural VAR model that is identified using a combination of sign and short-term (zero) restrictions. Our suggested identification scheme allows for a simultaneous reaction between the variables that are observed to respond intraday to news (the interest rate and the exchange rate), but maintains the recursive order for the traditional macroeconomic variables (GDP and inflation). Doing so, we find strong interaction between monetary policy and exchange rate variation. Our results suggest more theory consistency in the monetary policy responses than what has previously been reported in the literature.

Handelshøyskolen BI

This paper analyses the effects of oil price shocks on stock returns in Norway, an oil exporting country, highlighting the transmission channels of oil prices for macroeconomic behaviour. To capture the interaction between the different variables, stock returns are incorporated into a structural VAR model, as stock prices are an important transmission channel of wealth in an oil abundant country. I find that following a 10 percent increase in oil prices, stock returns increase by 2.5 percent, after which the effect eventually dies out. The results are robust to different (linear and non-linear) transformations of oil prices. The effects on the other variables are more modest. However, all variables indicate that the Norwegian economy responds to higher oil prices by increasing aggregate wealth and demand. The results also emphasize the role of other shocks; monetary policy shocks in particular, as important driving forces behind stock price variability in the short term.

Handelshøyskolen BI

Handelshøyskolen BI

We estimate the interdependence between US monetary policy and the S&P 500 using structural VAR methodology. A solution is proposed to the simultaneity problem of identifying monetary and stock price shocks by using a combination of short-run and long-run restrictions that maintains the qualitative properties of a monetary policy shock found in the established literature (Christiano et al., 1999). We find great interdependence between interest rate setting and real stock prices. Real stock prices immediately fall by 7-9 percent due to a monetary policy shock that raises the federal funds rate by 100 basis points. A stock price shock increasing real stock prices by one percent leads to an increase in the interest rate of close to 4 basis points.

Norges Bank

Dornbusch’s exchange rate overshooting hypothesis is a central building block in international macroeconomics. Yet, empirical studies of monetary policy have typically found exchange rate effects that are inconsistent with overshooting. This puzzling result has developed into a “styled facts” to be reckoned with in policy modelling. However, many of these studies, in particular those using VARs, have disregarded the strong contemporaneous interaction between monetary policy and exchange rate movements by placing zero restriction on them. By instead imposing a long-run neutrality restriction on the real exchange, thereby allowing the interest rate and the exchange rate to react simultaneously to any news, I find that the puzzles disappear. In particular, a contractionary monetary policy shock has a strong effect on the exchange rate that appreciates on impact. The maximum effect occurs immediately, and the exchange rate thereafter gradually depreciates to baseline, consistent with the Dornbusch overshooting hypothesis and with few exceptions consistent with UIP.

Department of Economics, University of Oslo

Statistisk sentralbyrå (SSB)

Abstract: This paper addresses the purchasing power parity (PPP) puzzle for commodity currencies. A substantial part of the literature on commodity currencies has found that, despite controlling for the effect of commodity prices, PPP does not hold in the long run. We show that once we also control for the effect of the interest rate differential in the real exchange rate relationship, the discrepancies from PPP are fully accounted for. The analysis is applied to the real exchange rate behaviour in Norway, which has a primary commodity (oil) that constitutes the majority of its exports. We show that with the interest rate differential included in the long run real exchange rate relationship, the real oil price plays a minor role. Adjustment to equilibrium (half-lives) is also substantially reduced, taking no more than one year on average. Hence, contrary to earlier findings on commodity currencies, we have effectively removed the PPP puzzle. Keywords: Exchange rate, commodity currencies, real oil price, purchasing power parity, uncovered interest parity.

Department of Economics, University of Oslo

Universitetet i Oslo

Universitetet i Oslo

Statistisk sentralbyrå (SSB)

Abstract: This study compares the forecasting performance of a structural exchange rate model that combines the purchasing power parity condition with the interest rate differential in the long run, with some alternative models. The analysis is applied to the Norwegian exchange rate. The long run equilibrium relationship is embedded in a parsimonious representation for the exchange rate. The structural exchange rate representation is stable over the sample and outperforms a random walk in an out-of-sample forecasting exercise at one to four horizons. Ignoring the interest rate differential in the long run, however, the structural model no longer outperforms a random walk. Keywords: Equilibrium real exchange rate, cointegration VAR, out-of-sample forecasting

Valutaseminaret

Kurs for lærere i samfunnsøkonomi ved videregående skoler

Growth and Business cycles in Theory and Practice

Dagens næringsliv

Dagens næringsliv

57th European Meeting of the Econometric Society

Det 24. nasjonale forskermøte for økonomer

Statistisk sentralbyrå (SSB)

Abstract: Modelling the Norwegian exchange rate against a basket of currencies, we find a robust long-term link between the real exchange rate and real interest differential that is consistent with purchasing power parity (PPP) and uncovered interest parity (UIP). However, PPP alone is rejected. These findings are confirmed focusing on the Norwegian bilateral exchange rate with Germany and (possibly) Sweden, but rejected against the UK and the US. We argue that rejection of bilateral relationships may result from idiosyncratic shocks in the different countries that may be negligible when modelling against a basket of currencies. Keywords: Purchasing power parity, uncovered interest parity, cointegration VAR.

Forelesningsserie i tidserieøkonometri

International Monetary Fund

This paper estimates core inflation in Norway, identified as that component of inflation that has no long-run effect on GDP. The model distinguishes explicitly between domestic and imported core inflation. The results show that (domestic) core inflation is the main component of CPI inflation. However, CPI inflation misrepresents core inflation during some periods. The differences are well explained by the other shocks identified in the model, in particular the oil price shocks of the 1970s when Norway imported inflation, and the negative non-core (supply) shocks of the late 1980s which pushed inflation up temporarily relative to core inflation.

First International Meeting on Economic Cycles

Statistisk sentralbyrå (SSB)

This paper analyses the role of real and nominal shocks in explaining business cycles in a small open economy like that of Norway. In particular, we study the sources behind real exchange rate fluctuations since the collapse of the Bretton Woods agreement. Imposing long run restrictions implied by economic theory on a structural vector autoregression (VAR) model containing GDP, unemployment (or price), real wage and the real exchange rate, four structural shocks are identified; Velocity, fiscal, productivity and labour supply shocks. The model is also augmented to allow for oil price shocks. The identified shocks and their impulse responses are consistent with an open economy (Keynesian) model of economic fluctuations, and highlights the exchange rate as a transmission mechanism in a small open and energy based economy. Especially, I have found a plausible sequence of shocks (productivity shocks in the 1970s, velocity shocks in the mid-1980s, productivity and labour supply shocks in the late 1980s, and velocity and fiscal shocks in the early 1990s), which help to explain the evolution of GDP, unemployment, price, real wage and the real exchange rate. The results are robust to alternative specifications of the model and are stable over the sample.

Annual Congress of the European Economic Association

Third International Conference On Financial Econometrics