Fishy Hedges: The Effectiveness of Commodities as Inflation Hedges in Norway During the Early 21st Century
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Abstract
This thesis investigates the effectiveness of commodities as inflation hedges in Norway during the early 21st century. It addresses a gap in the literature by examining the inflation hedging capabilities of oil, gas, salmon, and aluminum, within the unique economic context of Norway. These commodities were selected based on their economic relevance to Norway and previous research in other global contexts. As a traditionally perceived inflation hedge, gold is included in the analysis to evaluate its hedging effectiveness in Norway, and the OBX Index is included as a basis for comparison with stock market performance. Employing a quantitative approach, the research integrates archival data spanning from January 2001 to October 2023, analyzed with Pearson's Correlation Analysis, Single Regression Analysis, and Vector Autoregression (VAR) models. We found that most commodities do not appear to be effective hedges against inflation in Norway during the early 21st century. Brent crude oil, gas, and aluminum show low to no evidence of effectiveness as hedges. Though not fully effective, salmon demonstrates a significant lagged positive relationship with inflation and moderate potential as an inflation hedge. We also found that the OBX index has a significant negative relationship with inflation by all estimates. Gold shows promise by its high and significant inflation-beta but is not conclusive due to insignificant results from Pearson and VAR analysis. Though initially included as a control variable, the USD/NOK Exchange rate shows a strong, significantly positive relationship with inflation by all estimates, indicating that the USD currency can be an effective hedge against Norwegian inflation in the 21st century. Our aim for this thesis was to contribute to the existing body of literature and introduce this research topic in the Norwegian context. We hope our thesis and findings motivate further research within the field of hedging inflation with commodities.