Gisle J. Natvik is a professor of economics at the Norwegian Business School (BI). His main research interests are within macro economics, monetary economics and political economy.
Natvik's work has been published in European Economic Review, International Economic Review, Journal of the European Economic Association, Journal of Money, Credit and Banking, Journal of Public Economics, and other journals.
Asset valuations across many asset classes have increased substantially over the last several decades. While these rising valuations had important effects on the distribution of wealth, little is known regarding their redistributive effects in terms of welfare. To make progress on this question, we develop a sufficient statistic for the money-metric welfare gain of deviations in asset valuations. This welfare gain depends on the present value of an individual’s net asset sales rather than asset holdings: higher asset valuations benefit prospective sellers and harm prospective buyers. We estimate this quantity using panel microdata covering the universe of financial transactions in Norway from 1994 to 2019. We further demonstrate how to adapt our baseline statistic to account for important considerations, such as incomplete markets and collateral constraints. We find that the rise in asset valuations had large redistributive effects: it redistributed from the young to the old and from the poor to the wealthy.
Mehlum, Halvor; Natvik, Gisle James & Torvik, Ragnar (2024)
The impossible trinity: Competitive markets, free entry, and efficiency
We present a model in which workers make occupational choices and vote over a tax rate which determines the level of government spending. Workers in occupations whose services are in high (low) demand by the government favor high (low) taxes. We show that the socially efficient size of the public sector cannot be supported in a political economic equilibrium. The reason is that equilibrium tax rates always reward excessive entry into the politically most powerful sector, and thus the equilibrium size of government is always either too big or too small. We show that this is an example of a more general political economy result that extends well beyond the baseline model and holds quite generally: the combination of (i) competitive markets and (ii) free entry is inconsistent with (iii) allocative efficiency.
Fagereng, Andreas; Holm, Martin Blomhoff & Natvik, Gisle James (2021)
We use sizable lottery prizes in Norwegian administrative panel data to explore how transitory income shocks are spent and saved over time, and how households’ marginal propensities to consume (MPCs) vary with household characteristics and shock size. We find that spending peaks in the year of winning and gradually reverts to normal within five years. Controlling for all items on households’ balance sheets and characteristics such as education and income, it is the amount won, age, and liquid assets that vary systematically with MPCs. Low-liquidity winners of the smallest prizes (around USD 1,500) are estimated to spend all within the year of winning. The corresponding estimate for high-liquidity winners of large prizes (USD 8,300-150,000) is slightly below one half. While conventional models will struggle to account for such high MPC levels, we show that a two-asset life-cycle model with a realistic earnings profile and a luxury bequest motive can account for both the time profile of consumption responses and their systematic co-variation with observables.
Natvik, Gisle James; Rime, Dagfinn & Syrstad, Olav (2020)
Does publication of interest rate paths provide guidance?
We provide a parsimonious framework to study the interplay between cross-country assistance and expectations-driven sovereign debt crises. Our framework extends the traditional single-country model of how multiple perfect-foresight equilibria are possible when a sovereign attempts to service public debt. The extension is that a self-interested ‘safe’ country may choose to assist a ‘risky’ country which is prone to default. Investors internalize the potential for assistance when lending to fragile countries. If the safe country cannot commit to fixed cross-country transfers or rule them out completely, assistance improves equilibrium outcomes only if the risky country is fundamentally insolvent in the sense that it cannot repay existing debt at the risk-free interest rate. If a default requires pessimistic expectations, an incentive-compatible (IC) assistance policy has adverse side effects.
Gulbrandsen, Magnus Andreas Haare & Natvik, Gisle James (2020)
We address the interplay between household debt accumulation and monetary policy. Monetary policy likely affects household debt-to-income ratios via disposable income and inflation, not just by changing the financial incentive to save. We provide micro-level snapshots from Norway on how households’ income flows and debt accumulation co-move with interest rates and inflation. Real interest rate hikes are associated with increased real debt due to strong negative association between inflation and real debt. We therefore caution against pursuing contractionary policies to curb household debt. By lowering inflation, such policies might backfire and increase household debt burdens.
Natvik, Gisle James; Rime, Dagfinn & Syrstad, Olav (2020)
Does publication of interest rate paths provide guidance?
Does the central bank practice of publishing interest rate projections (IRPs) improve how market participants map new information into future interest rates? Using high-frequency data on forward rate agreements (FRAs) we compute market forecast errors; differences between expected future interest rates and ex-post realizations. We assess their change in narrow windows around monetary policy announcements and macroeconomic releases in Norway and Sweden. Overall, communication of future policy plans does not improve markets’ response to information, irrespective of whether or not IRPs are in place. A decomposition of market reactions into responses to the current monetary policy action (“target”) and responses to signals about the future (“path”), reveals that only policy actions lead to improvements in market forecasts.
Caporin, Massimiliano; Natvik, Gisle James, Ravazzolo, Francesco & Santucci de Magistris, Paolo (2019)
The bank-sovereign nexus: Evidence from a non-bailout episode
We explore the interplay between sovereign and bank credit risk in a setting where Danish authorities first let two Danish banks default and then left the country’s largest bank, Danske Bank, to recapitalize privately. We find that the correlation between bank and sovereign credit default swap (CDS) rates changed with these events. Following the non-bailout events, the sensitivity to external shocks, proxied by CDS rates on the European banking sector, declined both for Danske Bank and for Danish sovereign debt. After Danske Bank’s recapitalization, its exposure to the European banking sector reappeared while that did not happen for Danish sovereign debt. The decoupling between CDS rates on sovereign and private bank debt indicates that the vicious feedback loop between bank and sovereign risk weakened after the non-bailout policies were introduced.
Gelain, Paolo; Lansing, Kevin & Natvik, Gisle James (2018)
Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse-Engineering Approach
Journal of Money, Credit and Banking, 50(8), s. 1751- 1783. Doi: 10.1111/jmcb.12504
We use a quantitative asset pricing model to “reverse‐engineer” the sequences of shocks to housing demand and lending standards needed to replicate the boom–bust patterns in U.S. housing value and mortgage debt from 1993 to 2015. Conditional on the observed paths for U.S. real consumption growth, the real mortgage interest rate, and the supply of residential fixed assets, a specification with random walk expectations outperforms one with rational expectations in plausibly matching the patterns in the data. Counterfactual simulations show that shocks to housing demand, housing supply, and lending standards were important, but movements in the mortgage interest rate were not.
Gelain, Paolo; Lansing, Kevin & Natvik, Gisle James (2018)
How should a central bank act to stabilize the ratio of debt over gross domestic product (GDP)? We show how the persistent nature of household debt shapes the answer to this question. In environments where households repay mortgages gradually, surprise interest hikes only weakly influence household debt, and tend to increase debt-to-GDP in the short run while reducing it in the medium run. Interest rate rules with a positive weight on debt-to-GDP cause indeterminacy. Compared to inflation targeting, debt-to-GDP stabilization calls for a more expansionary policy when debt-to-GDP is high, so as to deflate the debt burden through inflation and output growth.
Holden, Steinar; Natvik, Gisle James & Vigier, Adrien Henri (2018)
We develop an equilibrium theory of credit rating in the presence of rollover risk. By influencing rational creditors, ratings affect sovereigns' probability of default, which in turn affects ratings. Our analysis reveals a pro‐cyclical impact of credit rating: In equilibrium the presence of a rating agency increases default risk when it is high and decreases default risk when it is low.
Aastveit, Knut Are; Natvik, Gisle James & Sola, Sergio (2017)
Economic uncertainty and the influence of monetary policy
This paper explores if economic uncertainty alters the macroeconomic influence of monetary policy. We use several measures of U.S. economic uncertainty, and estimate their interaction with monetary policy shocks as identified through structural vector autoregressions. We find that U.S. monetary policy shocks affect economic activity less when uncertainty is high, in line with “real-option” effects from theory. Holding uncertainty constant, the effect on investment is approximately halved when uncertainty is in its top instead of its bottom decile.
Natvik, Gisle James & Mirkov, Nikola (2016)
Announcements of interest rate forecasts: Do policymakers stick to them?
Journal of Money, Credit and Banking, 48(5), s. 901- 920. Doi: 10.1111/jmcb.12321
Matsen, Egil; Natvik, Gisle James & Torvik, Ragnar (2016)
