Norway’s experience of and response to the coronavirus pandemic

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 economic volatility that followed a series of shocks affecting the Norwegian economy in the spring of 2020. This included large fluctuations in oil prices and exchange rates, as well as the shutdown of certain sectors in response to the pandemic. We build a macroeconomic model of the economy's response to these different shocks, and we will use the model to isolate certain differences between the economies of Norway, Sweden, and Denmark, and compare these countries' experiences during the pandemic. The model can also be used to compare Norway's experience during the pandemic with other crises the country has gone through. 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. In part 1 of the project, the work in 2024 consisted of two parallel approaches. One approach involved extending an existing macroeconomic model for Norway to handle the large fluctuations in macroeconomic data during the pandemic. Any macroeconomic model to be used on data including the variation in the period 2020-2022 must include mechanisms capable of addressing this variation. The project group wrote a paper on this work, which is now under review at Samfunnsøkonomen. The other approach involved building a model that can be applied to Norway, Sweden, and Denmark. The purpose of this model is to isolate the main differences between these economies—such as the varying degrees of lockdown, different exchange rate regimes, and different exposure to the oil market—so the model can capture the three countries' experiences during the pandemic. In part 2 of the project, the project group worked in 2024 on processing the dataset purchased for the projects in part 2. The PhD student associated with the project has completed the course requirements at the University of Oslo, has finished a draft of his first scientific paper, and is now working on developing a paper related to part 2 of the project. In part 3 of the project, the work in 2024 involved updating the data used in the cost-benefit analysis. Newer data helps in assessing the long-term effects of different lockdown strategies.

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.