Instability to be expected in future

Gernot Doppelhofer
‘Norges Bank’s mandate allows a certain degree of flexibility; the aim is to meet the inflation target in the medium term,’ says Gernot Doppelhofer.
NHH By Mari Hansen Ingleson

11 March 2020 11:53

Instability to be expected in future

‘We can expect increased instability in the Norwegian economy going forward. Norway is affected by global uncertainty, and we are now seeing the Corona virus causing increased uncertainty in the markets,’ says Gernot Doppelhofer, Professor at NHH.

A committee of independent economists annually perform an assessment of Norges Bank’s activities. Gernot Doppelhofer, Professor at the Department of Economics, was a member of this year’s committee, which presented their report on Tuesday 3 March.

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‘It is important to carry out an assessment of Norges Bank’s activities to make sure that it implements the adopted monetary policy and effectively contributes to financial stability,’ says Doppelhofer.

The work was carried out on assignment for the Ministry of Finance and under the auspices of the Centre for Monetary Economics (CME) at BI Norwegian Business School. This year’s committee consisted of NHH Professor Gernot Doppelhofer and Chief Economist at Sparebank 1 SR-Bank Kyrre M Knudsen.

Increased global uncertainty

‘We can expect increased instability in the Norwegian economy going forward. Norway is affected by global uncertainty, and we are now seeing the Corona virus causing increased uncertainty in the markets,’ says Doppelhofer.

The weak Norwegian krone is still affecting the Norwegian economy. This leads to greater uncertainty in the economy in general, in addition to some sectors being particularly vulnerable to fluctuations.

The ECB and the Fed will be evaluating their monetary policies over the next year, and it will be important to monitor this development. Although Norway has implemented new guidelines, changes from the US or European central bank are likely to affect Norway’s choice of monetary policy.

Tasked with contributing to stability

In their report, Doppelhofer and Knudsen analyse Norway’s monetary policy and the communication of policy rate decisions in 2019. They look at the overall macroeconomic development in Norway, and provide a summary of the eight policy rate meetings and three of the Governor and Deputy Governor’s speeches. They also discuss the implementation of the new monetary policy regulations, which entail a downward adjustment of the inflation target from 2.5 to 2 per cent.

‘Norges Bank’s mandate allows a certain degree of flexibility; the aim is to meet the inflation target in the medium term,’ says Doppelhofer.

He adds that Norges Bank is responsible for contributing to financial stability.

Climate risk on the agenda

Deputy Governor Egil Matsen’s speech on climate risk in November 2019 is highlighted as one of the most important speeches in 2019.

Climate change is capable of impacting the Norwegian economy in several different ways. Doppelhofer and Knudsen emphasise that Norges Bank is a major asset manager, in addition to plotting the course for the Norwegian financial sector. Norges Bank is responsible for assessing climate risk and sustainability in connection with its activities.

Ensuring price stability is part of Norges Bank’s mandate. At the same time, Norges Bank exercises its mandate with a certain degree of flexibility, meaning that it must meet the inflation target in the medium term.