Time-Varying Dynamics of the Norwegian Economy

Abstract

We use time-varying parameter vector autoregressive models to investigate possible changes in the time-series properties of key Norwegian macroeconomic variables since the 1980s. Notably, we find that inflation persistence falls during the inflation targeting period, while the volatility of inflation and nominal exchange rates increases. The observed time-variation in the correlations between the interest rates and the macro variables largely reflects the prevailing monetary policy regimes. An increase in the correlations between oil prices and other macro variables over time is also documented. Using a counterfactual analysis, we discuss the observed time-varying dynamics of the Norwegian economy in the light of monetary policy and oil price shocks.