| dc.description.abstract | Since the turn of the millennium, a lasting period of mostly strong national economic growth has persisted. In the autumn of 2021, the Norwegian Central Bank began increasing the policy rate and has since increased it 13 times. This rapid increase in policy rate came about due to increasing inflation and a weakened currency. This thesis aims to assess if the economy is headed towards a crisis by conducting an empirical analysis of the present-day economy and a comparative analysis of past crises. The primary conclusion drawn is that the Norwegian economy shows strong signs of having been slowly overheated and is now perhaps headed towards stagflation,
The empirical analysis involved estimating the Taylor rule and Tobin’s Q as well as using the Hodrick-Prescott filter to estimate the long-term trend in various macro indicators. The Taylor Rule was used to assess the central bank’s recent historical interest rate decisions, while Tobin’s Q was used to check for deviation from fundamental values in the stock market.
The results from Taylor Rule and Tobin’s Q indicate that the Norwegian economy has had the necessary foundations to become overheated through an artificially low policy rate and actual overheating in the stock market. Combined with the strong growth in macro indicators such as GDP, consumption, and household leverage, it seems quite clear that there has been at least some overheating.
With unemployment creeping upwards, inflation rising swiftly, and GDP slightly plateauing, it is tempting to speculate on the potential of incoming stagflation. Many fundamental factors are also in place compared to historical incidents, such as increased prices for global input factors and a long period of previous overheating. | en_US |
