Why Did Norway Encounter Pronounced Levels of Inflation After the Pandemic? A Study of Inflation Dynamics

Abstract

This master thesis conducts a comprehensive analysis of inflation dynamics, trying to gain a better understanding of why inflation increased to such pronounced levels in the years after the COVID-19 pandemic. The pandemic caused the world economy several serious problems, with high inflation being the major problem in the aftermath of the pandemic. We analyzed this problem by employing a time series analysis to identify and evaluate key determinants, as well as a case study, comparing inflationary trends in Norway and Switzerland. Through detrending CPI and nine different economic variables, we carried out a multiple regression analysis to investigate whether the economic variables could explain the rise in inflation. In our empirical investigation, we ascertain that money supply, credit volume, the Harmonized Index of Consumer Prices (HICP), and unemployment emerge as the most significant factors influencing inflation. Our findings support existing literature on inflationary processes, which provides policymakers and economists with nuanced perspectives for informed decision-making. In addition to the time series analysis, a comparative case study between Norway and Switzerland is undertaken to further assess how a country´s macroeconomic landscape influences inflation. The study reveals a notable disparity in inflation rates, with Switzerland exhibiting lower inflation levels attributed to the resilience of its currency. This underscores the vital role of exchange rate dynamics in shaping inflation outcomes and advocates for a holistic approach to economic policy formulation. In conclusion, this master thesis contributes to the ongoing discussion on inflation, presenting a nuanced analysis that deepens our comprehension of the multifaceted forces driving inflationary trends. Through a combination of empirical evidence and case study insights, our research strives to inform strategic policy decisions aimed at fostering economic stability and resilience in an era of continual change.