Model based economic analysis

Normetrics is an interface to research and consulting work based on econometric modelling, in particular to the development and use of the Norwegian Aggregate Model (NAM).

Norwegian Aggregate Model version 20.1

A new version of the NAM documentation is available here. It documents new model features and revisions of existing ones.

CO2 forecast update: February 2020

The longest time series for atmospheric CO2 is for the Pacific island of Mauna Loa. Based on this time series, the development of the CO2 level can be forecasted on a monthly basis.

The atmospheric level of CO2 measured in January 2020 was 413.4 pp (average for the month). The latest forecast for January was 413.12 ppm. The updated forecast predicts that the CO2 level may reach a new all-time high in March 2020, and that the level might increase to 417.548 ppm in May 2020, which is significantly higher than the highest level recorded so far, which was for May 2019.

These predictions are illustrated in the figure below, which shows the forecasts for 2020(2)-2020(12) in the same figure as the actuals for 2019(1)-2020(1) (the dotted line). The vertical distance between the dashed lines indicate 95 percent forecast intervals.

Dette bildet mangler alt-tekst; dets filnavn er 12month-1024x433.png
Forecasts for 2020(2)-2020(12), with 95 % forecast intervals (dashed lines) and the actuals f
or 2019 (thin dashed line).

See the CO2 forecast page for more details.

Posted on 7 February 2020

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The day inflation targeting died

Norway’s monetary policy regime formally changed to inflation targeting in March 2001. In the following years, Norges Banks’s practicing of the new policy regime impacted significantly on the interest rate level. However, soon after the coming of the international financial crisis, the footprints of inflation targeting became more difficult to follow in the data, and they soon disappeared altogether.

The figure below tracks this development by showing an estimated “Taylor-coefficient” which measures by how much the policy interest rate can be expected to increase when the inflation gap changes by one unit.

In the heyday of inflation targeting, an increase in the inflation gap could be expected to lead to an even larger increase in the policy rate. However, soon after the financial crisis the estimated Taylor coefficient plunged down zero.  On the face of it, the epoch of inflation targeting was over almost as soon as the regime had installed itself.   

Norges Bank cut policy interest rate three times in the autumn of 2009. However, on exact which day, 15 October, 20 October or 17 December, inflation targeting became defunct may better be left is for the monetary policy historians to find out.      

Figure : Evolution of estimated Taylor coefficient with 95 % confidence interval indicated by dashed lines

Posted 8 January 2020. pdf-version