Norges Bank

Displaying 1-40 of 54 results

  • White Papers // Feb 2011

    New Perspectives On Depreciation Shocks As A Source Of Business Cycle Fluctuations

    In this paper the authors study the transmission for capital depreciation shocks. The existing literature in the Real Business Cycle tradition has concluded that these shocks are irrelevant for business cycle fluctuations. They show that these shocks are potentially important drivers of aggregate fluctuations in a New Keynesian model. Nominal...

    Provided By Norges Bank

  • White Papers // Dec 2010

    Letting The Anchor Go: Monetary Policy In Neutral Norway During World War I

    For later generations, August 1914 has become a watershed in monetary history. In a matter of days, the belligerent and neutral countries of Europe alike suspended the gold standard. The international monetary regime that had served the world economy for close to four decades was no more. Everywhere domestic fiat...

    Provided By Norges Bank

  • White Papers // Dec 2010

    Combining Predictive Densities Using Bayesian Filtering With Applications To US Economics Data

    Using a Bayesian framework this paper provides a multivariate combination approach to prediction based on a distributional state space representation of predictive densities from alternative models. In the proposed approach the model set can be incomplete. Several multivariate time-varying combination strategies are introduced. In particular, a weight dynamics driven by...

    Provided By Norges Bank

  • White Papers // Dec 2010

    Real And Financial Tradeoffs In Non-listed Firms: Cash Flow Sensitivities And How They Change With Shocks To Firms Main-bank

    The authors study how non-listed firms trade off financial, real, and distributive uses of cash. They show that firms' Marginal Value of Cash (MVC) affects the mix of external and internal finance used to absorb fluctuations in cash flows; in particular, high-MVC firms employ substantially more external finance on the...

    Provided By Norges Bank

  • White Papers // Dec 2010

    Investment-Specific Technology Shocks And Consumption

    Current business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that a positive investment-specific technology shock generally induces a negative consumption response. The objective of this paper is to investigate whether positive consumption responses to investment-specific technology shocks can be obtained in...

    Provided By Norges Bank

  • White Papers // Dec 2010

    Loose Commitment In Medium-Scale Macroeconomic Models: Theory And An Application

    This paper proposes a method and a toolkit for solving optimal policy with imperfect commitment in linear quadratic models. As opposed to the existing literature, the authors' method can be employed in medium- and large-scale models typically used in monetary policy. They apply the method to the Smets and Wouters...

    Provided By Norges Bank

  • White Papers // Dec 2010

    The Relationship Between Bankruptcy Risk And Growth For Non-Listed Firms

    The authors investigate the relationship between bankruptcy risks and expected future sales growth for Norwegian non-listed firms for the period 1988-2007. They find that firms with high bankruptcy risk also have high expected future growth. Financial ratios characterizing firms with high bankruptcy risk also characterize firms with high future expected...

    Provided By Norges Bank

  • White Papers // Nov 2010

    The Origins Of Foreign Exchange Policy: The National Bank Of Belgium And The Quest For Monetary Independence In The 1850s

    Can the central bank of a small open economy be mandated with the maintenance of both fixed exchange rates and monetary independence, and still succeed in the long term? Looking at a pioneering experiment put in place by the National Bank of Belgium; this paper shows how foreign exchange policy...

    Provided By Norges Bank

  • White Papers // Nov 2010

    Universal Banking And The Development Of Secondary Corporate Debt Markets: Lessons From 1830s Belgium

    This paper proposes a reassessment of the old-age debate on universal banking and growth by putting it on a different plan. Modern financial economics are used to provide new theoretical foundations to Gerschenkron's (1962) hypothesis: universality is interpreted as a strategy for banks to reach the critical size needed in...

    Provided By Norges Bank

  • White Papers // Nov 2010

    Information Sharing And Information Acquisition In Credit Markets

    Since information asymmetries have been identified as an important source of bank profits, it may seem that the establishment of information sharing (e.g., introducing credit bureaus or public registers) will lead to lower investment in acquiring information. However, banks base their decisions on both hard and soft information, and it...

    Provided By Norges Bank

  • White Papers // Oct 2010

    The Long-run Exchange Rate For NOK: A BEER Approach

    This paper investigates a long-run relation for the trade weighted NOK exchange rate. The author finds that the NOK Trade Weighted Index (TWI) cointegrates with the real oil price, the price differential and the real interest differential. The paper documents a long-run solution for the TWI. The paper's main contribution...

    Provided By Norges Bank

  • White Papers // Sep 2010

    Oil And US GDP: A Real-Time Out-Of-Sample Examination

    The authors study the real-time Granger-causal relationship between crude oil prices and US GDP growth through a simulated Out-Of-Sample (OOS) forecasting exercise; they also provide strong evidence of in-sample predictability from oil prices to GDP. Comparing the benchmark model "Without oil" against alternatives "With oil," they strongly reject the null...

    Provided By Norges Bank

  • White Papers // Aug 2010

    Voting When The Stakes Are High

    Rational choice theories of electoral participation stress that an individual's decision to vote depends on her expected net benefit from doing so. If this instrumental motive is relevant, then turnout should be higher in elections where more is at stake. The authors test this prediction, by studying how turnout is...

    Provided By Norges Bank

  • White Papers // Aug 2010

    Government Spending Shocks And Rule-of-thumb Consumers: The Role Of Steady State Inequality

    Gal?, L?pez-Salido, and Vall?s (2007) suggest that because part of the population follows a rule-of-thumb by which they spend their entire disposable income each period, private consumption responds positively to deficit-financed increases in government spending. Key to this result is a centralized labor market. The author shows that the ability...

    Provided By Norges Bank

  • White Papers // Aug 2010

    Banking Competition, Monitoring Incentives And Financial Stability

    This paper addresses the desirability of competition in banking industry. In a model where banks compete on both deposit and loan markets and where banks can use monitoring technology to control entrepreneurs' behavior, the authors investigate three questions: what are the effects of competition on banks' monitoring incentives? Does competition...

    Provided By Norges Bank

  • White Papers // Jul 2010

    The Zero Lower Bound On The Interest Rate And A Neo-classical Phillips Curve

    With sticky prices, optimizing agents and money in the utility function, the author derives the exact analytical solution for optimal monetary policy given a Zero Lower Bound (ZLB) on the interest rate. The Phillips curve is Neo-Classical, and the ZLB is then not a constraint on optimal policy. Optimal policy...

    Provided By Norges Bank

  • White Papers // Jun 2010

    Why Do Firms Pay For Liquidity Provision In Limit Order Markets?

    In recent years, a number of electronic limit order markets have reintroduced market makers for some securities (Designated Market Makers). This trend has mainly been initiated by financial intermediaries and listed firms themselves, without any regulatory pressure. In this paper, the authors ask why firms are willing to pay to...

    Provided By Norges Bank

  • White Papers // May 2010

    The Taylor Principle In A Medium-scale Macroeconomic Model

    The Taylor Principle is often used to explain macroeconomic stability (see, e.g., Clarida et al. 2000). The reason is that this simple principle guarantees determinacy, i.e., local uniqueness of rational expectations equilibrium, in many New Keynesian models. However, analyses of determinacy are generally conducted in the context of highly stylized...

    Provided By Norges Bank

  • White Papers // May 2010

    Weights And Pools For A Norwegian Density Combination

    The authors apply a suite of models to produce quasi-real-time density forecasts of Norwegian GDP and inflation, and evaluate different combination and selection methods using the Kullback-Leibler Information Criterion (KLIC). They use linear and logarithmic opinion pools in conjunction with various weighting schemes, and they compare these combinations to two...

    Provided By Norges Bank

  • White Papers // Apr 2010

    Conditional Forecasts In DSGE Models

    New-generation DSGE models are sometimes misspecified in dimensions that matter for their forecasting performance. The paper suggests one way to improve the forecasts of a DSGE model using conditioning information that need not be accurate. The technique presented allows for agents to anticipate the information on the conditioning variables several...

    Provided By Norges Bank

  • White Papers // Apr 2010

    The Discursive Dilemma In Monetary Policy

    The discursive dilemma implies that the policy decision of a board of policymakers depends on whether the board reaches the decision by voting directly on policy (conclusion-based procedure), or by voting on the premises for the decision (premise-based procedure). The authors derive results showing when the discursive dilemma may occur,...

    Provided By Norges Bank

  • White Papers // Apr 2010

    Why Do People Give Less Weight To Advice The Further It Is From Their Initial Opinion?

    Experimental studies on decision making based on advice received from others find that the weight put on the advice is negatively related to the distance between the advice and the decision maker's initial opinion. In this paper, the authors show that the distance effect can follow from rational signal extraction...

    Provided By Norges Bank

  • White Papers // Apr 2010

    Simple Rules Versus Optimal Policy: What Fits?

    The authors estimate a small open-economy DSGE model for Norway with two specifications of monetary policy: a simple instrument rule and optimal policy based on an intertemporal loss function. The empirical fit of the model with optimal policy is as good as the model with a simple rule. This result...

    Provided By Norges Bank

  • White Papers // Mar 2010

    Forecast Densities For Economic Aggregates From Disaggregate Ensembles

    The authors propose a methodology for producing forecast densities for economic aggregates based on disaggregate evidence. The ensemble predictive methodology utilizes a linear mixture of experts framework to combine the forecast densities from potentially many component models. Each component represents the univariate dynamic process followed by a single disaggregate variable....

    Provided By Norges Bank

  • White Papers // Mar 2010

    The Dynamics Of Operating Income In The Norwegian Banking Sector

    The banking literature contains only a handful of studies of how bank revenues vary over the business cycle, and nearly all of these studies look exclusively on the net interest margin. The general conclusion has been that the margin tends to increase during recessions and decrease during booms. In this...

    Provided By Norges Bank

  • White Papers // Dec 2009

    Mean Reversion In Profitability For Non-listed Firms

    The presence of mean reversion in profitability at the firm level is important for valuation and prediction of growth and earnings. The authors investigate the mean reversion in accounting profitability for Norwegian non-listed firms for the period 1988-2006. They find a mean reversion rate of about 0.44. This is higher...

    Provided By Norges Bank

  • White Papers // Dec 2009

    Are Bank Lending Shocks Important For Economic Fluctuations?

    The authors analyze the importance of bank lending shocks on real activity in Norway and the UK, using structural VARs and based on quarterly data for the past 21 years. The VARs are identified using a combination of sign and short-term zero restrictions, allowing for simultaneous interaction between various variables....

    Provided By Norges Bank

  • White Papers // Dec 2009

    The Origins Of A Paper Money Economy - The Case Of Norway

    This paper sketches the origins of paper money in Norway back to the last half of the 18th century and asks why there was no circulation of full-bodied coins even after notes had become convertible into silver at par in 1842. The argument put forward is that the choice of...

    Provided By Norges Bank

  • White Papers // Dec 2009

    Optimality Of Prompt Corrective Action In A Continuous - Time Model With Recapitalization Possibility

    Prompt Corrective Action (PCA) is a system of predetermined capital/asset ratios that trigger supervisory actions by a banking regulator. The authors' paper addresses the optimality of this regulation system by adapting a dynamic model of entrepreneurial finance to banking regulation. In a dynamic moral hazard setting, they first derive the...

    Provided By Norges Bank

  • White Papers // Nov 2009

    Evaluating Ensemble Density Combination - Forecasting GDP And Inflation

    Forecast combination has become popular in central banks as a means to improve forecasts and to alleviate the risk of selecting poor models. However, if a model suite is populated with many similar models, then the weight attached to other independent models may be lower than warranted by their performance....

    Provided By Norges Bank

  • White Papers // Nov 2009

    Combining VAR And DSGE Forecast Densities

    A popular macroeconomic forecasting strategy takes combinations across many models to hedge against instabilities of unknown timing; see (among others) Stock and Watson (2004), Clark and McCracken (2010), and Jore et al. (2010). Existing studies of this forecasting strategy exclude Dynamic Stochastic General Equilibrium (DSGE) models, despite the widespread use...

    Provided By Norges Bank

  • White Papers // Nov 2009

    The Information Content Of Market Liquidity: An Empirical Analysis Of Liquidity At The Oslo Stock Exchange?

    The authors investigate the information content of aggregate stock market liquidity and ask whether it may be a useful realtime indicator, both for financial stress, and real economic activity in Norway. They describe the development in a set of liquidity proxies at the Oslo Stock Exchange (OSE) for the period...

    Provided By Norges Bank

  • White Papers // Nov 2009

    What Factors Affect The Oslo Stock Exchange?

    This paper analyzes return patterns and determinants at the Oslo Stock Exchange (OSE) in the period 1980-2006. The authors find that a three-factor model containing the market, a size factor and a liquidity factor provides a reasonable t for the cross-section of Norwegian stock returns. As expected, oil prices significantly...

    Provided By Norges Bank

  • White Papers // Oct 2009

    The Historical Connection Between Short Term Output And Prices In A Small Open Economy

    According to a Keynesian view, short term output fluctuations are normally demand side led. Since prices reflect demand, they should mirror output fluctuations. Thus, prices and output are expected to move in the same direction in the short run. The present paper investigates the historical co-movements of output and prices...

    Provided By Norges Bank

  • White Papers // Oct 2009

    Price Stability And Inflation Persistence During The International Gold Standard: The Scandinavian Case

    In the 1870s the three Scandinavian countries Denmark, Norway and Sweden formed the Scandinavian Currency Union. Both the adoption of gold and the monetary union were supposed to lead to price stability in and between these countries. By drawing on new indices of consumer prices the present paper offers an...

    Provided By Norges Bank

  • White Papers // Oct 2009

    Bank Regulation And Bank Crisis: The Main Developments In The Norwegian Regulatory System Before, During And After The Banking Crisis Of 1988-92

    The Norwegian experiences of the past thirty years illustrate what the authors believe are two general tendencies in bank regulation. The first one is that a bank crisis will tend to focus regulators' minds and lead to stricter regulations. The second one is that cycles in regulation tend to interact...

    Provided By Norges Bank

  • White Papers // Oct 2009

    Overconfidence, Monetary Policy Committees And Chairman Dominance

    The authors suggest that overconfidence among policymakers explains why formal decision power over monetary policy is given to committees, while much of the real power to set policy remains with central bank chairmen. Overconfidence implies that the chairman underweights advice from his staff, increasing policy risk if he alone decides....

    Provided By Norges Bank

  • White Papers // Oct 2009

    Bagehot For Beginners: The Making Of Lending Of Last Resort Operations In The Mid-19th Century

    In this paper, the authors survey the development of lending of last resort operations in the mid-19th century. They identify and document critical dimensions of the extension of lending of last resort functions, and also develop original empirical tests enabling them to identify such things as the emergence of "Free...

    Provided By Norges Bank

  • White Papers // Aug 2009

    Macro Modelling With Many Models

    The authors argue that the next generation of macro modellers at Inflation Targeting central banks should adapt a methodology from the weather forecasting literature known as 'Ensemble modelling'. In this approach, uncertainty about model specifications (e.g., initial conditions, parameters, and boundary conditions) is explicitly accounted for by constructing ensemble predictive...

    Provided By Norges Bank

  • White Papers // Jul 2009

    Social Capital And The Viability Of Stakeholder-Oriented Firms: Evidence From Norwegian Savings Banks

    Stakeholder oriented governance systems are often thought to hamper efficiency. The authors show that social capital improves the viability of stakeholder-oriented firms in competitive markets. Studying exits from the population of Norwegian savings banks after deregulations, they find that banks located in communities with high social capital have a higher...

    Provided By Norges Bank

  • White Papers // Dec 2010

    Investment-Specific Technology Shocks And Consumption

    Current business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that a positive investment-specific technology shock generally induces a negative consumption response. The objective of this paper is to investigate whether positive consumption responses to investment-specific technology shocks can be obtained in...

    Provided By Norges Bank

  • White Papers // Dec 2010

    Combining Predictive Densities Using Bayesian Filtering With Applications To US Economics Data

    Using a Bayesian framework this paper provides a multivariate combination approach to prediction based on a distributional state space representation of predictive densities from alternative models. In the proposed approach the model set can be incomplete. Several multivariate time-varying combination strategies are introduced. In particular, a weight dynamics driven by...

    Provided By Norges Bank

  • White Papers // Dec 2010

    Letting The Anchor Go: Monetary Policy In Neutral Norway During World War I

    For later generations, August 1914 has become a watershed in monetary history. In a matter of days, the belligerent and neutral countries of Europe alike suspended the gold standard. The international monetary regime that had served the world economy for close to four decades was no more. Everywhere domestic fiat...

    Provided By Norges Bank

  • White Papers // Dec 2010

    Real And Financial Tradeoffs In Non-listed Firms: Cash Flow Sensitivities And How They Change With Shocks To Firms Main-bank

    The authors study how non-listed firms trade off financial, real, and distributive uses of cash. They show that firms' Marginal Value of Cash (MVC) affects the mix of external and internal finance used to absorb fluctuations in cash flows; in particular, high-MVC firms employ substantially more external finance on the...

    Provided By Norges Bank

  • White Papers // Dec 2010

    Loose Commitment In Medium-Scale Macroeconomic Models: Theory And An Application

    This paper proposes a method and a toolkit for solving optimal policy with imperfect commitment in linear quadratic models. As opposed to the existing literature, the authors' method can be employed in medium- and large-scale models typically used in monetary policy. They apply the method to the Smets and Wouters...

    Provided By Norges Bank

  • White Papers // Nov 2010

    The Origins Of Foreign Exchange Policy: The National Bank Of Belgium And The Quest For Monetary Independence In The 1850s

    Can the central bank of a small open economy be mandated with the maintenance of both fixed exchange rates and monetary independence, and still succeed in the long term? Looking at a pioneering experiment put in place by the National Bank of Belgium; this paper shows how foreign exchange policy...

    Provided By Norges Bank

  • White Papers // Nov 2010

    Universal Banking And The Development Of Secondary Corporate Debt Markets: Lessons From 1830s Belgium

    This paper proposes a reassessment of the old-age debate on universal banking and growth by putting it on a different plan. Modern financial economics are used to provide new theoretical foundations to Gerschenkron's (1962) hypothesis: universality is interpreted as a strategy for banks to reach the critical size needed in...

    Provided By Norges Bank

  • White Papers // Oct 2010

    The Long-run Exchange Rate For NOK: A BEER Approach

    This paper investigates a long-run relation for the trade weighted NOK exchange rate. The author finds that the NOK Trade Weighted Index (TWI) cointegrates with the real oil price, the price differential and the real interest differential. The paper documents a long-run solution for the TWI. The paper's main contribution...

    Provided By Norges Bank

  • White Papers // Sep 2010

    Oil And US GDP: A Real-Time Out-Of-Sample Examination

    The authors study the real-time Granger-causal relationship between crude oil prices and US GDP growth through a simulated Out-Of-Sample (OOS) forecasting exercise; they also provide strong evidence of in-sample predictability from oil prices to GDP. Comparing the benchmark model "Without oil" against alternatives "With oil," they strongly reject the null...

    Provided By Norges Bank

  • White Papers // Aug 2010

    Voting When The Stakes Are High

    Rational choice theories of electoral participation stress that an individual's decision to vote depends on her expected net benefit from doing so. If this instrumental motive is relevant, then turnout should be higher in elections where more is at stake. The authors test this prediction, by studying how turnout is...

    Provided By Norges Bank

  • White Papers // Aug 2010

    Government Spending Shocks And Rule-of-thumb Consumers: The Role Of Steady State Inequality

    Gal?, L?pez-Salido, and Vall?s (2007) suggest that because part of the population follows a rule-of-thumb by which they spend their entire disposable income each period, private consumption responds positively to deficit-financed increases in government spending. Key to this result is a centralized labor market. The author shows that the ability...

    Provided By Norges Bank

  • White Papers // Jul 2010

    The Zero Lower Bound On The Interest Rate And A Neo-classical Phillips Curve

    With sticky prices, optimizing agents and money in the utility function, the author derives the exact analytical solution for optimal monetary policy given a Zero Lower Bound (ZLB) on the interest rate. The Phillips curve is Neo-Classical, and the ZLB is then not a constraint on optimal policy. Optimal policy...

    Provided By Norges Bank

  • White Papers // Jun 2010

    Why Do Firms Pay For Liquidity Provision In Limit Order Markets?

    In recent years, a number of electronic limit order markets have reintroduced market makers for some securities (Designated Market Makers). This trend has mainly been initiated by financial intermediaries and listed firms themselves, without any regulatory pressure. In this paper, the authors ask why firms are willing to pay to...

    Provided By Norges Bank

  • White Papers // May 2010

    The Taylor Principle In A Medium-scale Macroeconomic Model

    The Taylor Principle is often used to explain macroeconomic stability (see, e.g., Clarida et al. 2000). The reason is that this simple principle guarantees determinacy, i.e., local uniqueness of rational expectations equilibrium, in many New Keynesian models. However, analyses of determinacy are generally conducted in the context of highly stylized...

    Provided By Norges Bank

  • White Papers // Apr 2010

    Conditional Forecasts In DSGE Models

    New-generation DSGE models are sometimes misspecified in dimensions that matter for their forecasting performance. The paper suggests one way to improve the forecasts of a DSGE model using conditioning information that need not be accurate. The technique presented allows for agents to anticipate the information on the conditioning variables several...

    Provided By Norges Bank

  • White Papers // May 2010

    Weights And Pools For A Norwegian Density Combination

    The authors apply a suite of models to produce quasi-real-time density forecasts of Norwegian GDP and inflation, and evaluate different combination and selection methods using the Kullback-Leibler Information Criterion (KLIC). They use linear and logarithmic opinion pools in conjunction with various weighting schemes, and they compare these combinations to two...

    Provided By Norges Bank

  • White Papers // Apr 2010

    The Discursive Dilemma In Monetary Policy

    The discursive dilemma implies that the policy decision of a board of policymakers depends on whether the board reaches the decision by voting directly on policy (conclusion-based procedure), or by voting on the premises for the decision (premise-based procedure). The authors derive results showing when the discursive dilemma may occur,...

    Provided By Norges Bank

  • White Papers // Apr 2010

    Why Do People Give Less Weight To Advice The Further It Is From Their Initial Opinion?

    Experimental studies on decision making based on advice received from others find that the weight put on the advice is negatively related to the distance between the advice and the decision maker's initial opinion. In this paper, the authors show that the distance effect can follow from rational signal extraction...

    Provided By Norges Bank

  • White Papers // Apr 2010

    Simple Rules Versus Optimal Policy: What Fits?

    The authors estimate a small open-economy DSGE model for Norway with two specifications of monetary policy: a simple instrument rule and optimal policy based on an intertemporal loss function. The empirical fit of the model with optimal policy is as good as the model with a simple rule. This result...

    Provided By Norges Bank

  • White Papers // Mar 2010

    Forecast Densities For Economic Aggregates From Disaggregate Ensembles

    The authors propose a methodology for producing forecast densities for economic aggregates based on disaggregate evidence. The ensemble predictive methodology utilizes a linear mixture of experts framework to combine the forecast densities from potentially many component models. Each component represents the univariate dynamic process followed by a single disaggregate variable....

    Provided By Norges Bank

  • White Papers // Dec 2009

    Mean Reversion In Profitability For Non-listed Firms

    The presence of mean reversion in profitability at the firm level is important for valuation and prediction of growth and earnings. The authors investigate the mean reversion in accounting profitability for Norwegian non-listed firms for the period 1988-2006. They find a mean reversion rate of about 0.44. This is higher...

    Provided By Norges Bank

  • White Papers // Dec 2009

    Optimality Of Prompt Corrective Action In A Continuous - Time Model With Recapitalization Possibility

    Prompt Corrective Action (PCA) is a system of predetermined capital/asset ratios that trigger supervisory actions by a banking regulator. The authors' paper addresses the optimality of this regulation system by adapting a dynamic model of entrepreneurial finance to banking regulation. In a dynamic moral hazard setting, they first derive the...

    Provided By Norges Bank

  • White Papers // Dec 2009

    Are Bank Lending Shocks Important For Economic Fluctuations?

    The authors analyze the importance of bank lending shocks on real activity in Norway and the UK, using structural VARs and based on quarterly data for the past 21 years. The VARs are identified using a combination of sign and short-term zero restrictions, allowing for simultaneous interaction between various variables....

    Provided By Norges Bank

  • White Papers // Nov 2009

    The Information Content Of Market Liquidity: An Empirical Analysis Of Liquidity At The Oslo Stock Exchange?

    The authors investigate the information content of aggregate stock market liquidity and ask whether it may be a useful realtime indicator, both for financial stress, and real economic activity in Norway. They describe the development in a set of liquidity proxies at the Oslo Stock Exchange (OSE) for the period...

    Provided By Norges Bank

  • White Papers // Dec 2009

    The Origins Of A Paper Money Economy - The Case Of Norway

    This paper sketches the origins of paper money in Norway back to the last half of the 18th century and asks why there was no circulation of full-bodied coins even after notes had become convertible into silver at par in 1842. The argument put forward is that the choice of...

    Provided By Norges Bank

  • White Papers // Nov 2009

    What Factors Affect The Oslo Stock Exchange?

    This paper analyzes return patterns and determinants at the Oslo Stock Exchange (OSE) in the period 1980-2006. The authors find that a three-factor model containing the market, a size factor and a liquidity factor provides a reasonable t for the cross-section of Norwegian stock returns. As expected, oil prices significantly...

    Provided By Norges Bank

  • White Papers // Nov 2009

    Combining VAR And DSGE Forecast Densities

    A popular macroeconomic forecasting strategy takes combinations across many models to hedge against instabilities of unknown timing; see (among others) Stock and Watson (2004), Clark and McCracken (2010), and Jore et al. (2010). Existing studies of this forecasting strategy exclude Dynamic Stochastic General Equilibrium (DSGE) models, despite the widespread use...

    Provided By Norges Bank

  • White Papers // Oct 2009

    Bagehot For Beginners: The Making Of Lending Of Last Resort Operations In The Mid-19th Century

    In this paper, the authors survey the development of lending of last resort operations in the mid-19th century. They identify and document critical dimensions of the extension of lending of last resort functions, and also develop original empirical tests enabling them to identify such things as the emergence of "Free...

    Provided By Norges Bank

  • White Papers // Oct 2009

    The Historical Connection Between Short Term Output And Prices In A Small Open Economy

    According to a Keynesian view, short term output fluctuations are normally demand side led. Since prices reflect demand, they should mirror output fluctuations. Thus, prices and output are expected to move in the same direction in the short run. The present paper investigates the historical co-movements of output and prices...

    Provided By Norges Bank

  • White Papers // Oct 2009

    Price Stability And Inflation Persistence During The International Gold Standard: The Scandinavian Case

    In the 1870s the three Scandinavian countries Denmark, Norway and Sweden formed the Scandinavian Currency Union. Both the adoption of gold and the monetary union were supposed to lead to price stability in and between these countries. By drawing on new indices of consumer prices the present paper offers an...

    Provided By Norges Bank

  • White Papers // Nov 2009

    Evaluating Ensemble Density Combination - Forecasting GDP And Inflation

    Forecast combination has become popular in central banks as a means to improve forecasts and to alleviate the risk of selecting poor models. However, if a model suite is populated with many similar models, then the weight attached to other independent models may be lower than warranted by their performance....

    Provided By Norges Bank

  • White Papers // Oct 2009

    Overconfidence, Monetary Policy Committees And Chairman Dominance

    The authors suggest that overconfidence among policymakers explains why formal decision power over monetary policy is given to committees, while much of the real power to set policy remains with central bank chairmen. Overconfidence implies that the chairman underweights advice from his staff, increasing policy risk if he alone decides....

    Provided By Norges Bank

  • White Papers // Aug 2009

    Macro Modelling With Many Models

    The authors argue that the next generation of macro modellers at Inflation Targeting central banks should adapt a methodology from the weather forecasting literature known as 'Ensemble modelling'. In this approach, uncertainty about model specifications (e.g., initial conditions, parameters, and boundary conditions) is explicitly accounted for by constructing ensemble predictive...

    Provided By Norges Bank

  • White Papers // Jul 2009

    Social Capital And The Viability Of Stakeholder-Oriented Firms: Evidence From Norwegian Savings Banks

    Stakeholder oriented governance systems are often thought to hamper efficiency. The authors show that social capital improves the viability of stakeholder-oriented firms in competitive markets. Studying exits from the population of Norwegian savings banks after deregulations, they find that banks located in communities with high social capital have a higher...

    Provided By Norges Bank

  • White Papers // Jul 2009

    Do Re-election Probabilities Influence Public Investment?

    The authors identify exogenous variation in incumbent policymakers' re-election probabilities and explore empirically how this variation affects the incumbents' investment in physical capital. The results indicate that a higher re-election probability leads to higher investments, particularly in the purposes preferred more strongly by the incumbents. This aligns with a theoretical...

    Provided By Norges Bank

  • White Papers // Jul 2009

    Bootstrapping The Likelihood Ratio Cointegration Test In Error Correction Models With Unknown Lag Order

    The authors investigate the small-sample size and power properties of bootstrapped likelihood ratio systems cointegration tests via Monte Carlo simulations when the true lag order of the data generating process is unknown. A recursive bootstrap scheme is employed. They estimate the order by minimizing different information criteria. In comparison to...

    Provided By Norges Bank

  • White Papers // Jun 2009

    Price Adjustments And Inflation - Evidence From Norwegian Consumer Price Data 1975-2004

    The author documents price adjustments in both high and low inflation years from 14 million monthly price observations of 1,133 goods and services. The variation in the frequency of price changes explains all the variation in the inflation rate. On average, prices increase more often when inflation is high, and...

    Provided By Norges Bank

  • White Papers // Jun 2009

    Forecast Accuracy And Economic Gains From Bayesian Model Averaging Using Time Varying Weight

    Several Bayesian model combination schemes, including some novel approaches that simultaneously allow for parameter uncertainty, model uncertainty and robust time varying model weights, are compared in terms of forecast accuracy and economic gains using financial and macroeconomic time series. The results indicate that the proposed time varying model weight schemes...

    Provided By Norges Bank

  • White Papers // Jun 2009

    Monetary Policy And Exchange Rate Overshooting: Dornbusch Was Right After All

    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 been viewed by some researchers as a "Stylized fact" to be reckoned with in policy modelling....

    Provided By Norges Bank

  • White Papers // Apr 2009

    Fiscal Stimulus In A Credit Crunch: The Role Of Wage Rigidity

    In this paper, the authors study the impact of an expansion in public spending in a credit constrained economy with sticky wages. The flexible wage version of the model implies strong expansionary effects on output and consumption but also a counterfactual increase in real wages. The introduction of sticky wages,...

    Provided By Norges Bank