Forecasts for the Norwegian economy 2009q2-2012q4

Transcription

1 June 9 Forecasts for the Norwegian economy 9q-q Forecasts are presented.for the second quarter of 9 until the end of of important macroeconomic variables using The Norwegian Aggregate Model (NAM) Information about the model and a disclaimer are in the box at the back of the document. The forecasts are presented in Figures - below, each consisting of four panels of graphs. Starting from upper left, going to upper right and then to lower left, and ending at lower right, the four panels of each Figure are referred to as a)-d). The four panels of Figure show NAM forecasts of four headline variables: CPI inflation, the rate of unemployment, the average nominal interest rate on loans in Norwegian banks, and real credit growth. The distance between the dashed (red) lines represents the approximate 7% prediction intervals. Hence, future realizations within the intervals are regarded by the model as more likely events than realizations outside the intervals. Annual CPI inflation Unemployment rate (registered) Bank loan interest rate Annual real credit grow th 7 Figure : NAM forecasts for the period 9q-q with % prediction intervals Data for the period 7q-9q are included for reference. Panel a) shows an increase in the annual rate of CPI inflation at the end of 9, before stabilizing below %. The rate of unemployment (panel b) is forecasted to continue to

2 June 9 increase during 9 and peak below % at the beginning of. Panel c) shows the domestic interest rate, represented by the average bank loan rate. Following recent cuts in the money marked rate, the bank lending will reach its minimum at around.% during. The final panel in Figure shows real credit growth, which is projected by the model to be very modest in 9- and not to return to a more representative growth rate until. Figure gives an overview over the development in prices by showing inflation adjusted for energy and taxes (CPI-AET), so-called core inflation, in panel a), CPI inflation and wage cost growth in panels b) and c), and import price growth (panel d). Core inflation is forecasted to fall gradually towards.% by early, before falling gradually towards % at the end of. The annual rate of wage inflation is falling rapidly in 9, from the healthy rates in -9, with a turning point by the end of. Import price growth too is markedly reduced in 9, this is due to falling inflation internationally, and to the reversion of the exchange rate depreciation that charaterized the autumn of and the winter of 9. Annual core inflation (CPI-AET) Annual CPI inflation Annual w age cost grow th Annual import price inflation Figure. NAM forecasts for the period 9q-q with % prediction intervals

3 June 9 Mainland GDP annual grow th rate Real exchange rate Real bank loan interest rate Unemployment rate (Labour force Survey) Figure. NAM forecasts for the period 9q-q with % prediction intervals Four important real variables are shown in Figure. Panel a) shows real GDP growth for Mainland-Norway. The forecasted GDP growth is shown in graph a). The negative growth in 9 is a manifestation of the ongoing world recession, but growth is expected to be back around % already in. This might prove to be optimistic and will depend upon whether international contraction or domestic expansive policy will dominate. Panels b) and c) of Figure give an indication. They show two important explanatory variables for mainland GDP: the real exchange rate and the domestic real interest rate. The real exchange rate (graph b) is relatively constant over period as a whole, and is therefore not much help for GDP growth to recover. The impact of the low real interest rate in panel c) is much more important in this respect. Growth is a main factor behind the increase and then fall in unemployment shown in Figure above, and graph d) in figure shows how the model projects the Labour Force Survey rate of unemployment. GDP growth is also related to credit growth, which is captured by the model in two important ways. First, tightening of credit supply affects the GDP growth rate negatively. Second, lower GDP growth reduces the demand for loans. Figure takes a closer look at the interest rate and (the market for) foreign exchange. Panel a) shows the rate of currency depreciation (the four quarter rate of change in the trade weighted nominal exchange rate). The international value of the krone is projected to increase in the next quarter, before remaining roughly constant for the rest of the

4 June 9 forecast period. We note that this is in line with the lowering of the interest rate in panel b) and the relatively constant differential against foreign interest rates (panel c). The low interest rates, however, will help credit growth to recover very quickly once it starts increasing in the latter part of. Annual rate of currency depreciation Interest rate ( month) Interest rate differential ( month) Annual real credit grow th Figure. NAM forecasts for the period 9()-() with % prediction intervals

5 June 9 References Bårdsen, Gunnar, Øyvind Eitrheim, Eilev S. Jansen, and Ragnar Nymoen.. The Econometrics of Macroeconomic Modelling. Oxford: Oxford University Press. Bårdsen, Gunnar and Paul Gregory Fisher "Economic Theory and Econometric Dynamics in Modelling Wages and Prices in the United Kingdom." Empirical Economics, :, pp. -7. Bårdsen, Gunnar., Paul G. Fisher, and Ragnar Nymoen. 99. "Business Cycles: Real Facts or Fallacies?" Econometrics and Economic Theory in the th Century: The Ragnar Frisch Centennial Symposium: Cambridge University Press: Cambridge. Bårdsen, G., E. S. Jansen, and R. Nymoen.. "Econometric Inflation Targeting." Econometrics Journal, :, pp. 9-. Bårdsen, Gunnar and Jan Tore Klovland.. "Shaken, or Stirred? Effects of Financial Deregulation on Money, Credit, and Output in Norway". The Scandinavian Journal of Economics, () --,. Bårdsen, Gunnar and Ragnar Nymoen.. "Rente og Inflasjon (Interest Rate and Inflation)." Norsk Økonomisk Tidsskrift,, pp. -. Nymoen, Ragnar. 99. "A small linear model of wage- and price-inflation in the Norwegian economy." Journal of Applied Econometrics,, pp. -9. About NAM and disclaimer Model developers are Gunnar Bårdsen ( ) and Ragnar Nymoen ( Norwegian Aggregate Model (NAM) is an econometric model project which extends from the early econometric assessment of wage- and price-inflation in Nymoen (99), further developed in Bårdsen, Fisher, and Nymoen (99), Bårdsen and Fisher (999), and the monetary transmission model of Bårdsen and Klovland (). Earlier versions of the model are documented in Bårdsen and Nymoen (), Bårdsen, Jansen, and Nymoen () and Bårdsen, Eitrheim, Jansen, and Nymoen (). NAM is used for both research purposes and for teaching. The macroeconomic data is from the model databases of Statistics Norway (KVARTS model) and Norges Bank (FPAS database). Earlier forecasts are at NAM relies on data provided by the macroeconometric research unit in Statistics Norway, and on data from the macroeconomic database of The Norwegian Central Banks. The user assumes the entire risk related to the use of this information. The authors are providing this information "as is," and the authors disclaim any and all warranties, whether express or implied, including (without limitation) any implied warranties of merchantability or fitness for a particular purpose. In no event will the authors be liable for any direct, indirect, incidental, consequential, special or exemplary damages or lost profit resulting from any use or misuse of this information.