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SAMØKONOMI-Makroøkonomiske utfordringer

Model invariance and constancy in the face of large shocks to the Norwegian macroeconomic system

Alternative title: Relativ stabilitet i relasjonene i norske makromodeller etter store sjokk til det økonomiske system.

Awarded: NOK 12.0 mill.

Project Manager:

Project Number:

324472

Application Type:

Project Period:

2021 - 2026

Location:

Economic models used for forecasting and to aid policy decisions have been estimated by the use of data from before the Covid-19 pandemic and the ensuing lockdowns, drop in economic activity and surge in unemployment. An important question for model developers and users is therefore how the empirical relationships that represented normal behavior of firms and households before Covid-19 have been affected by the pandemic and by the policy responses. The aim of the project is to close this knowledge gap. Another goal is to contribute to the development of methods that may mitigate the consequences of such effects for model based forecasting and for policy analysis during future pandemics and other disruptions to the economy. This will include development of methods for early detection of breaks in relationships, which may cut down the time-delay before the implications for policy can be analyzed. This may be of importance for economic performance during a future crisis. The project includes an extended investigation of earlier crises, namely the financial crisis of 2008/09 and the crisis brought about by fall in oil prices in 2015/16. These crises have originated in different parts of the economy and the policy response have been different. Improved knowledge of the robustness of model relationships with respect to different crises can increase the usefulness of models during future crises. The policy responses during a pandemic are motivated by health issues, but will have consequences for the economy in whole. In this project, the joint forecasting of public health and economics system will be explored which is major R&D challenge in this field. The Covid-19 crisis has affected all national economies. The project will therefore include comparative analyses of the crisis. The goal is to investigate empirically whether institutional differences and different policy responses have affected the economic performance during and after the crisis.

Economic forecasts and policy judgement, and decisions are often based on relationships between economic variables that have been estimated by the use of data. There is a need for knowledge about how the relationships that normally govern the behavior of firms and households have been changed by the Covid-19 pandemic and by the policy responses. Relationships that represent economic behavior make up the core of macroeconometric models that are developed as tools for forecasting and policy analyses. The project aims to close the knowledge gap about model robustness by investigating how the relationships in models of the Norwegian economy have changed during the Covid-19 pandemic. The project includes an extended investigation of earlier crises, namely the financial crisis of 2008/09 and the crisis brought about by the large reduction in oil prices in 2015/16. These crises have originated in different parts of the economic system, and the policy response have been different. Improved knowledge of the robustness of model relationships with respect to different crises can increase the usefulness and relevance of models for the policy decisions during future crises. The project aims to contribute to the R&D of methods that may mitigate the consequences of non-robustness for forecasting and for policy analysis during future pandemics and other sudden disruptions to the economy. The policy responses during a pandemic are motivated by health issues, but will have consequences for the economy in whole. In this project, the joint forecasting of public health and economics system will be explored which is major R&D challenge in this field. The Covid-19 crisis has affected all national economies. The project will therefore include comparative analyses of the crisis. The goal is to investigate empirically whether institutional differences and different policy responses have significantly affected the economic performance during and after the crisis.

Publications from Cristin

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Funding scheme:

SAMØKONOMI-Makroøkonomiske utfordringer