Author Archives: Bankplassen

Norway’s road to inflation targeting

by Øyvind Eitrheim and Jan Fredrik Qvigstad, Norges Bank.

oyvind-Eitrheim-NB-11922Jan-F.-Qvigstad-NB-12094Norway suffered from a deep recession with a systemic banking crisis in the early 1990s. The prevailing fixed exchange rate system at that time had procyclical properties. Norway changed its monetary policy regime to that of inflation targeting and flexible exchange rates around the turn of the millennium. When the financial crisis hit in 2008 and when oil prices fell in 2014, the exchange rate channel in both cases helped absorb the shock and cushion the effects on the Norwegian economy. It is an open question whether the fear of floating exchange rates could have been overcome at an earlier point of time. However, the experiences from the past two decades tell us better late than never.

Norway suffered from a deep recession with a systemic banking crisis in the early 1990s. The prevailing fixed exchange rate system at that time had procyclical properties. The fall of the Berlin Wall in 1989, the German reunification in the autumn of 1990 and the rebuilding of the East German Länder led to higher German interest rates. These higher interest rates put pressure upwards on the Norwegian interest rates and thus aggravated the Norwegian crisis.

Norway changed its monetary policy regime to that of inflation targeting and flexible exchange rates around the turn of the millennium. When the financial crisis hit in 2008 and when oil prices fell in 2014, we could meet this with lower interest rates instead of higher rates as we did in the early 1990s. In addition, the exchange rate channel in both cases helped absorb the shock and cushion the effects on the Norwegian economy.

What if? Counterfactual simulations.

To illustrate properties of the fixed and flexible exchange rate systems, we have made counterfactual analyses of four episodes. You can read more about these episodes here. What would have happened if inflation targeting and flexible exchange rates had been introduced already in the early or mid-1990s? And what if a fixed exchange rate regime was still in place in 2008 and 2014?  We have used the macroeconomic models available in Norges Bank at the time to conduct the counterfactual simulations.

We made already in the late 1990s counterfactual simulations using the bank’s main macro model at that time, RIMINI, see figure 1. The results indicate how inflation targeting and flexible exchange rates might have dampened the recession in the early 1990s, allowing interest rates to be reduced during the prevailing deep recession.


Together with Erling Motzfeldt Kravik and Yasin Mimir who work in the bank’s model unit, we have also applied the bank’s current main macro model, NEMO, to illustrate what would have happened if inflation targeting had been in place in the second half of the 1990s. Figure 2 indicates that that would have led to a smoother development than we experienced with the regime we had then.


We have also used NEMO to conduct counterfactual analyses of two episodes in the 2000s, the global financial crisis in 2008 and the oil price fall in 2014, respectively. Both episodes took place after Norway had changed its monetary policy regime to inflation targeting and flexible exchange rates, and the counterfactual regime would then have been a return to fixed exchange rates.

The financial crisis hit us in 2008.  Figure 3 shows that a return to the old fixed exchange rate regime would have incurred substantial output costs following a tightening of monetary policy in order to maintain a stable exchange rate.


In 2014 the oil prices fell significantly. The exchange rate functioned as a shock absorber. In a fixed exchange rate regime, we would have had to increase the interest rate significantly in order to defend the currency, causing a dramatic recession, twice in magnitude of the one we experienced in the early 1990s under the assumptions underlying this counterfactual scenario. However, as the shock in 2014 turned out to be a very persistent one, this would most likely have changed the policy response after some time, allowing for a devaluation of the nominal exchange rate. The illustrated counterfactual scenario is therefore not necessarily a realistic description of what would have been an optimal policy response in this situation under a fixed exchange rate regime.


Confidence and trust. That’s what matters.

It should be stressed that today’s monetary policy regime works because of its established credibility and confidence in the nominal anchor. It can indeed be questioned whether such credibility was in place as early as in 1990. The accommodating policy of the devaluation decade 1976-1986 had weakened the confidence among the public that monetary policy would deliver low and stable inflation. Thus, proposing a change in the monetary policy regime as early as in 1990 might have been interpreted as a reversion of the policy change four years earlier, and that the government, so to speak, was ”throwing the cards”.

Although New Zealand as the first country had introduced inflation targeting effective from February 1990, the inflation targeting regime was in its infancy, and was yet neither well known nor well established as an alternative monetary policy regime in Norway at the time. After all, there had been a considerable time for deliberations and for maturing the decision to move to inflation targeting in New Zealand, a process that started already in the early 1980s. Canada and Sweden followed suit and introduced inflation targeting as early as in 1991 and 1993 respectively, whereas it took another ten years before Norway introduced inflation targeting de jure in 2001.

We are not completely free to set interest rates even in a flexible exchange rate regime.

Monetary policy in a small open economy like Norway will always be constrained. The room for manoeuvre will be limited. For example, the combination of high oil prices and low international interest rates in 2010-2014 turned out to yield procyclical outcomes, notwithstanding the fact that Norges Bank used the freedom to maintain higher interest rates than in the Eurozone. But in times of crisis Norway has been well-served by exchange rate flexibility, which made monetary policy more countercyclical when needed, thus providing important relief which helped smooth the process adapting to the global financial crisis in 2008 and the drop in oil prices in 2014.

Fear of floating?

It is an open question whether the fear of floating exchange rates could have been overcome at an earlier point of time, such as in the midst of the 1990s. Then countries like New Zealand, Canada, Finland and Sweden had already pioneered adopting inflation targeting and floating exchange rates. However, the experiences from the past two decades tell us better late than never.

You find more about Norway’s road to inflation targeting and the counterfactual simulations here.

Bankplassen er en fagblogg av ansatte i Norges Bank. Synspunktene som uttrykkes her representerer forfatternes syn og kan ikke nødvendigvis tillegges Norges Bank. Har du spørsmål eller innspill, kontakt oss gjerne på


Har norske foretak høy gjeld sammenliknet med nivået i andre land?

Ida Nervik Hjelseth og Haakon Solheim, avdeling for finansiell stabilitet, Norges Bank.

ida_bloggHaakon-Solheim-NB-12135Norges Bank har lenge pekt på sårbarheten knyttet til høy gjeld i norske husholdninger. Men har også norske foretak høy gjeld? Svaret er avhengig av hvordan man definerer gjeld. Vi argumenterer for at det er mest relevant å se bort fra gjeld mellom ikke-finansielle foretak. Med dette målet er gjeldsnivået i den norske foretakssektoren på linje med nivået i land det er naturlig å sammenlikne seg med. Continue reading

Økt usikkerhet blant norske bedrifter

av Ingrid Haaskjold, avdeling for pengepolitikk, Norges Bank.

Ingrid-Haaskjold-NB-17266Usikkerheten blant bedriftene i Norges Banks regionale nettverk økte i 2019, særlig blant dem som importerer mye fra utlandet. Mange venter at usikkerhet vil dempe aktiviteten deres det neste året, blant annet gjennom reduksjon og utsettelse av ansettelser og investeringer. Men usikre framtidsutsikter ser også ut til å motivere flere til å gå inn i nye markeder. Continue reading

Svinger utviklingen i børsnoterte og unoterte foretak i samme takt?

av Lisa Reiakvam, avdeling for finansiell stabilitet, Norges Bank.


En betydelig del av bankenes tap på utlån oppstår i unoterte aksjeforetak. Derfor er det viktig å vurdere tilstanden i disse foretakene når vi skal vurdere den finansielle stabiliteten. Men data for unoterte aksjeforetak publiseres med et langt tidsetterslep som gjør det vanskelig å gjøre løpende analyse. I denne bloggposten viser jeg hvordan vi kan bruke data for de børsnoterte foretakene for å anslå utviklingen i alle aksjeforetak og vurdere risikoen for at bankene vil tape på sine utlån. Continue reading

The macroeconomic effects of forward guidance

By Leif Brubakk, Saskia ter Ellen, Ørjan Robstad and Hong Xu, Norges Bank.





Modern monetary policy is all about communication – and mostly about the future. Many central banks now engage in guiding the public on the future policy stance, so called forward guidance. A finding in both theoretical and empirical models is that a surprise increase in the current policy rate will lead to an economic contraction and a drop in inflation, at least after some time. But what about forward guidance?  In simple textbook models, forward guidance is very powerful, even in the short run. These models also carry the puzzling prediction, coined the “the forward guidance puzzle”, that the macroeconomic effects today are larger the more forward the guidance.¹ For example, announcing a temporary increase in the policy rate in five years would have a stronger impact on inflation today than a similar change in the current policy rate. Continue reading

Digitaliseringen av arbeidsmarkedet har redusert likevektsledigheten i Norge med 20 prosent

av Andreas Kostøl, avdeling for pengepolitikk, Norges Bank.

Andreas-Kostol-NB-16714- Foto_Nils_Stian_AasheimInternett har digitalisert søkeprosessen i arbeidsmarkedet. Det startet med søkemotorer og jobbportaler som endret hvordan arbeidsgivere og jobbsøkere fant hverandre. Jobbportalene reduserte kostnadene ved å utlyse en stilling, og gjorde det enklere for bedrifter å nå ut til kandidatene. I dag finner en ledig jobb en arbeider automatisk med bruk av stordata og smarte algoritmer. Continue reading

Nowa – er det en ny rente og et alternativ til Nibor?

av Karianne Gundersen og Ketil Johan Rakkestad, Markeder og IKT, Norges Bank.

Karianne-Gundersen-NB-16271- Foto_Nils_Stian_Aasheim (1)Ketil-Johan-Rakkestad-NB-12096Arbeidsgruppen for alternative referanserenter i norske kroner (ARR) har anbefalt at overnattenrenten Nowa skal være alternativ referanserente i norske kroner. Nowa har eksistert siden 2011, men fra nyttår har Nowa blitt beregnet og publisert på en ny måte. I denne bloggen forsøker vi å svare på hva en alternativ referanserente er, hva Nowa er, hva som er endret siden nyttår og hva det egentlig betyr at Nowa er anbefalt som alternativ referanserente. Continue reading

Fra fire indikatorer til fire vurderinger – oppdatert beslutningsgrunnlag for motsyklisk kapitalbuffer

av Ragna Alstadheim, Henrik Borchgrevink og Elif Ceren Arbatli Saxegaard.

Ragna-Alstadheim-NB-16972Henrik-Borchgrevink-NB-11893Elif-Arbatli-NB-16717- Foto_Nils_Stian_AasheimEn del av kapitalkravet til bankene er en buffer som skal bygges opp i gode tider når risikoen øker og settes til null når det er krise. Hvordan vet vi når det er lurt å heve og senke bufferkravet? Norges Bank har nylig oppdatert og tydeliggjort rammeverket for råd om dette bufferkravet.  Det gamle rammeverket beskrev fire sentrale indikatorer  for råd om bufferen. Det nye beskriver fire vurderinger som Norges Bank gjør før råd gis. De fire vurderingene baseres  på et utvidet sett av  indikatorer og andre analyser. I denne bloggen forklarer vi hvorfor det var lurt å oppdatere rammeverket. Continue reading

Sterk preferanse for flytende rente i Norge

av Martin Bjørlo og Hanna Winje, avdeling for markeder og IKT og avdeling for finansiell stabilitet, Norges Bank.

Martin-Bjorlo-NB-16982- Foto_Nils_Stian_AasheimHanna-Winje-NB-12180Norske husholdninger velger i all hovedsak flytende rente. Siden 2005 har andelen husholdningslån med fast rente ligget under 10 prosent. Fastrenteandelen er lavere i Norge enn i de fleste land vi sammenligner oss med. For eksempel er fastrenteandelen i de andre skandinaviske landene rundt 30–40 prosent. Høy gjeldsbelastning i mange norske husholdninger taler for at flere kunne hatt nytte av å forsikre seg mot renteoppgang. Hvorfor er da fastrenteandelen så lav? Continue reading

Prepared for the next crisis? Workshop on financial regulation in Norges Bank.

by Ragnar Enger Juelsrud, department of monetary policy, Norges Bank.

ragnarjulsrud (1 of 1)The global financial crisis caused a wave of regulatory reforms. The reforms aimed at making the financial system safer and less prone to both creating and reinforcing an economic downturn. Now, a decade later, a debate taking place on whether more, less, or different regulation is needed going forward. Motivated by this, Norges Bank organized the workshop “Prepared for the next crisis? The costs and benefits of financial regulation” on the 11th and 12th of November. The workshop, organized together with the International Banking, Economics, and Finance Association (IBEFA), was held in Oslo and brought together researchers from all across the globe. Continue reading