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Financial imbalances, crisis probability and monetary policy in Norway

Author

Listed:
  • Ragna Alstadheim

    (Norges Bank (Central Bank of Norway))

  • Ørjan Robstad

    (Norges Bank (Central Bank of Norway))

  • Nikka Husom Vonen

    (The Ministry of Labour and Social Affairs)

Abstract

We assess the strength of the impact of a monetary policy shock on financial crisis probability in Norway. Policy effects go via the interest rate impact on credit, house prices and banks’ wholesale funding. We find that the impact of a monetary policy shock on crisis probability is about 10 times larger than what previous studies suggest. The large impact is mostly due to a fall in property prices and banks’ wholesale funding in response to a contractionary monetary policy shock. In contrast, and in line with existing literature, there is a more limited contribution to reduced crisis probability from the impact of monetary policy on credit.

Suggested Citation

  • Ragna Alstadheim & Ørjan Robstad & Nikka Husom Vonen, 2017. "Financial imbalances, crisis probability and monetary policy in Norway," Working Paper 2017/21, Norges Bank.
    • Handle: RePEc:bno:worpap:2017_21
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    File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2017/212017/
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary Policy; Financial Imbalances; Financial Crisis; Structural VAR;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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