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SAMØKONOMI-Makroøkonomiske utfordringer

Norway’s experience of and response to the coronavirus pandemic

Alternative title: Norges erfaringer under og respons på koronaviruspandemien

Awarded: NOK 11.9 mill.

Project Number:

326419

Application Type:

Project Period:

2021 - 2024

Location:

This project analyses the economic effects of the coronavirus pandemic in Norway and studies both the aggregate fluctuations that occurred and the distributional consequences. The project is organized in three work packages that will compare Norway’s experience of the pandemic with other major economic events in Norway and with the experience of other countries. The first work package focuses on the aggregate effects of the shocks and policies that affected the Norwegian economy in the spring of 2020. This includes large movements in the oil price and the exchange rate, and the policy of shutting down certain sectors. A second goal is to a provide a macroeconomic model of the economy’s response to these shocks. Such a model can isolate the effects of different shocks and can be used to contrast Norway’s experience during the pandemic with other crises the country has gone through. Comparisons will also be made with the experiences of Sweden and Denmark. The second work package studies the distributional consequences of the pandemic and the policies that were implemented in response. The effects were unevenly distributed as some sectors were completely shut down while others could transition to working from home. It is important to understand how households at different points of the income distribution responded to these changes. The project will study the implications of the different responses for the overall economy using a modern macroeconomic model with heterogeneous agents. The third work package provides a cost-benefit analysis of the different policies that were adopted across countries. The policies involved different trade-offs between economic costs and health benefits. Through a cost-benefit analysis of the strategies to fight the coronavirus, policy makers can learn more about the trade-offs involved. This will be a crucial input into an assessment of the choices made in Norway, and in the preparation for dealing with pandemics in the future.

This project is organized in three work packages (WPs). WP1 is concerned with modelling the aggregate fluctuations that the Norwegian economy went through during the pandemic. First, the goal is to empirically establish the set of shocks that affected the economy at this time. These range from large movements in external factors such as the oil price and the exchange rate, to the domestic policies of shutting down certain sectors and the behavioral responses to the pandemic itself. A second goal is to a provide a macroeconomic model of the economy’s response to the set of shocks. Such a model can isolate the effects of different shocks and policies. Therefore, the model can be used to contrast Norway’s experience during the pandemic with counterfactual scenarios involving different policy choices and with other crises the country has gone through. In addition, we will cooperate with Konjunkturinstitutet in Sweden and the DREAM-group in Denmark to compare the pandemic crisis in Norway to the experience of those countries. WP2 will also study aggregate fluctuations, but will do so in with a basis in micro data. WP2 will study the distributional consequences of the policies that were implemented during the crisis as well as the behavioral response from households at different points in the income distribution. Data from debit card transactions can allow us to capture the sudden change in behavior during the spring of 2020, and a modern macroeconomic model with heterogeneous agents can then allow us to study the aggregate implications of these changes. WP3 focuses on the different approaches to dealing with the spread of infection that were adopted across countries. Through a cost-benefit analysis of the different strategies to fight the coronavirus, policy makers in Norway can learn more about the trade-offs involved. This will be a crucial input into an assessment of the choices made in Norway, and in the preparation for dealing with pandemics in the future.

Activity:

SAMØKONOMI-Makroøkonomiske utfordringer