Historical price indices and price shocks : Norway 1736–1766 : a macroeconomic and historical approach

Abstract

In this paper, we use the Laspeyres index to construct a cost of living index (CLI), a wholesale price index (WPI), and a producer price index (PPI) for Norway for the period 1736–1766. We use the newly published database Historiske toll- og skipsanløpslister to collect price series on Arendal, Christiania, Drammen, Fredrikstad, and Kristiansand. Our final data set, after necessary refinements and interpolations, consists of price series for 52 commodities. Due to the importance of the cities in this context, the resulting indices are representative for the country as a whole. After constructing the indices, we analyze them using historical findings and economic theory. We use the CLI to analyze the general price level and calculate inflation. From the CLI we identified four major price shocks. The main findings from the analysis is that crop failure and wars have the most substantial impact on national price levels. Towards the end of the period, we find that increased money supply to finance wars caused persistent inflation in the long run. We also analyze the PPI, where we find that substitution effects, regulatory changes, and supply changes are the most important causes of price shocks. Although it is difficult to postulate causal effects between the shocks and historical events, the findings of this thesis still point towards explicit relationships between the events and timing of the price shocks. We believe the revised CLI is more reliable and accurate than Grytten (2004), since the data set used in this thesis is more extensive and accurate. When comparing our CLI with Sweden and Denmark, we find that it reflects historical events better than Grytten (2004), because our index follows the general price development in Scandinavia better and therefore captures the effects of exogenous economic shocks more reliably. We also confirm that erratic inflation was not an uncommon phenomenon for the period, which is in line with previous literature on the topic.