The predictive power of the term structure in Norway

Abstract

The aim of this thesis is to study if the term structure is a good predictor of Norwegian real economic activity and whether it can be used as a forecasting tool in real time or not. We study both theoretical and empirical explanations. Some of the models are replicated from international studies and others are created based on our perception of theory and adjusted to Norwegian conditions. All results indicate that the term structure contains information about Norwegian real economic activity, although the results are not as evident compared to the US. The results imply that it is useful to control for the influence of the oil sector and international term spreads. Characteristics of the term structure as a leading indicator makes it useful as an additional supplement to other leading indicators.