Analytical essay on the Norwegian economic policies
Written by: József Gazsó Module leader: Péter Bárczy Module: Economic Policies Wordcount: 3200
The purpose of this essay is to examine Norway from the perspective of its economic policies. I am trying to pay special attention to its recession resolution technique in order to understand better why this country could preserve itself against the most severe financial crisis of the last few decades. The reason why I picked Norway as a topic is because I lived half-a-year there as an exchange student. Apparently, I was there when the crisis was the most threatening to all the European countries (in the autumn semester of 2008). However, I did not notice huge changes in the standards of living. Due to the country’s extensive reserves, it could protect the economy by keeping the prices relatively stable so the changes in demand could remain almost the same because of the purchasing power of the consumers. Apart from that, the recession had a favourable effect as well on the economy, since the price of oil doubled over a short period of time, so Norway, as a country which is heavily related to oil, could gain significant revenues. For Norway and other countries that are dependent on exports of oil, gas and other commodities, government revenues and current account surpluses are reduced. This will most likely curb the growth of sovereign wealth funds in the near-term future. As Landon T. Jr. (2009) emphasizes, the recession in Norway turned out to be much milder than in most other European countries. This is probably both a result of good economic policies, good financial regulation, and good luck. The monetary policy has been very expansionary since December 2008. Furthermore, the effects of monetary policy on aggregate demand are probably greater in Norway than in most other European countries due to the combination of large household indebtedness and floating mortgage rates. Fiscal policy also became much more expansionary in 2009 on top of the effects of automatic fiscal stabilisers. Good policies and conservative financial regulation are also – at least partly – factors that explain why there has been neither banking crisis, nor severe problems in any Norwegian bank in 2009. Norway’s fiscal position is solid. Its large oil and gas revenues, as well as the policy of saving these revenues and investing them abroad through the Government Pension Fund – Global have allowed Norway to run large budget surpluses and government assets. The
international financial crisis did temporarily cut off many Norwegian banks from international funding, but this problem was manageable, and was fixed without any sizeable credit crunch. Finally it was good luck that the oil price doubled in the year of 2009 and that the Norwegian manufacturing sector is relatively small, quite capital intensive, and not much involved in producing consumer durables.
I find it important to mention, that Norges Bank is Norway’s central bank. The Bank shall promote economic stability in Norway. Norges Bank has executive and advisory responsibilities in the area of monetary policy and is responsible for promoting robust and efficient payment systems and financial markets. Norges Bank manages Norway’s foreign exchange reserves and the Government Pension Fund Global. The objectives of the Bank's core activities are price stability, financial stability and added value in investment management. They are a good source of information, because all the materials are perfectly translated into English so the whole policy system is extremely transparent. The basis of this essay is provided by the articles and publications of Norges Bank. The other most valuable source of information is the Statistiks Sentralbyrå, in other words the Statistics Norway. Statistics Norway prepares and publishes all official statistics on Norway and also engages in extensive research. Statistics...
References: Jafarov E., Leigh D. (2007) Alternative Fiscal Rules for Norway. IMF Working Papers, Vol. , pp. 1-30, 2007. Available at SSRN: http://ssrn.com/abstract=1087158 Norges Bank (2009) Monetary Policy Reports. Available at Norges Bank Online: http://www.norges-bank.no/search/ search____112.aspx?search=monetary%u0020policy%u0020report%u00202009 Norges Bank (2010) Monetary Policy Report 01/2010. Available at Norges Bank Online: http://www.norges-bank.no/upload/78487/mpr1_10.pdf Qvigstad J.F (2008) Transparency and Central Bank communication. Economic Bulletin 2/2008. Available at Norges Bank Online: http://www.norges-bank.no/upload/72941/ transparency.pdf Landon T. Jr. (2009) Thriving Norway provides an economics lesson. New York Times [internet] Available at New York Times Online: http://www.nytimes.com/2009/05/14/ business/global/14frugal.html
Bernanke, et al (2001) Inflation targeting: lessons from the international experience. Google Books [internet] Available at Google Books Online: http://books.google.com/ books?id=MryLRLgkjGQC&lpg=PP9&ots=FQ8r_hc8aI&dq=mishkin%20fs%20inflation%20targeting&lr& Finanstilsynet (2010), About Finanstilsynet. Finanstilsynet [internet]. Available at Finanstilsynet Online: http://www.finanstilsynet.no/en/Secondary-menu/AboutFinanstilsynet/ Brubakk L., Sveen T. (2009) NEMO – a new macro model for forecasting and monetary policy analysis. Economic Bulletin 1/2009 Vol. 80 pp.39-47, Available at Norges Bank Online: http://www.norges-bank.no/upload/76231/nemo.pdf Jore A.S (2008) Improving and evaluating short term forecasts at the Norges Bank. Norges Bank: Staff Memo, Available at Encyclopaedia Britannica Online: http://www.britannica.com/ bps/additionalcontent/18/34182635/Improving-and-evaluating-short-term-forecasts-at-theNorges-Bank
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