Erling Steigum

A Crisis Not Wasted – Institutional and Structural Reforms Behind Norway's Strong Macroeconomic Performance.

This paper draws the line between the Norwegian boom-bust cycle and crises in the late 1980s and early 1990s, the succeeding institutional and structural reforms and the strong macroeconomic performance and stability of the last two decades. The systemic banking crisis and speculative attack on the Norwegian krone in the early 1990s were the last in a series of blows to Norway’s macroeconomic policy regime. In addition to the recession after 1988, the underlying growth potential of the Mainland economy was also weak, despite financial deregulation and the gains in competitiveness. The large oil price fall in the mid-1980s had demonstrated the risk of uncertain oil revenues as an important source of income to the government. The political awareness of an economic crisis paved the way for a series of structural reforms and changes in the macroeconomic policy regime. Some of these reforms were implemented quickly, such as a tax reform, an energy market reform and a new incomes policy framework. In 2001 a new framework for monetary and fiscal policy was put in place, involving a flexible exchange rate and inflation targeting, as well as a new fiscal policy rule designed to facilitate consumption smoothing and a build-up of a sovereign wealth fund. We discuss possible reasons why Norway’s political system has been able to learn from previous policy failures and reach the necessary consensus, and determination, to implement institutional and structural reforms in economic policy.

Keynesian and Classical Unemployment in an Open Economy

This paper examines various unemployment equilibria in a fix-price model of an open economy with nontraded goods. The economy exports an internationally traded good and imports an intermediate input good. The comparative static effects of various exogenous variables on total employment and the balance of trade are derived and compared across regimes. Considerable emphasis is placed on the employment effects of external disturbances. Both price shocks, such as a rise in the price of the imported intermediate good, and quantity shocks, e.g. a slump in the demand for exportables, are examined, and the appropriate policy for restoring full employment is discussed in each case.

Petroleum wealth, debt policy, and intergenerational welfare: The case of Norway

Abstract What happens to the welfare of present and future generations in Norway if the petroleum wealth of the central government is consumed in the course of the next 40 years? By simulating a computable overlapping-generations model, this paper illustrates the magnitudes that are likely to be involved. Due to the Norwegian governments huge wealth, the scope for intergenerational redistribution through debt policy is much greater in Norway than in most other countries in the OECD. Our results indicate that a wealth consumption policy has serious and long-lasting negative effects on the welfare of the present very young generations and generations that are not yet born.

Intersectoral transfer of labour in a small open economy

Abstract This paper deals with normative and positive aspects of labour transfer processes in the context of a small open two-sector economy. Labour is not homogenous in the short run because transfer of labour is assumed to involve training costs in terms of output foregone when workers already possessing industry-specific knowledge are training new workers. The efficient transfer plan for this economy is characterized, and the determinants of the optimal rate of transfer derived. Upon examination of the competitive price system supporting the efficient plan, the first-best adjustment assistance policy is found, assuming real wages are sticky.

Wealth, structural adjustment and optimal recovery from the Dutch disease

We analyse how an oil-exporting economy producing traded and non-traded goods should adjust when its oil wealth depreciates unexpectedly and intersectoral transfer of labour is costly. Optimal adjustment involves decreasing consumption and a gradual loss of non-human wealth before a new long-run equilibrium is established. In the short run the relative price of non-traded goods undershoots its long-run equilibrium. Moreover, the competitive wage differential widens initially and then gradually decreases. An external borrowing constraint will slow down the optimal adjustment process. The long-run implications of a borrowing constraint are higher consumption of both goods and a smaller sector producing traded goods.

ARMOD: A Small Numerical Macroeconomic World Model with

The purpose of this paper is to demonstrate the usefulness of a non-Walrasian numerical modeling approach to current macroeconomic problems of excessive unemployment and trade imbalances in the OECD area. The model, which consists of five world regions, generates a sequence of short-run equilibria. The model captures international transmission mechanisms of business-cycle impulses and of the effects of monetary and fiscal policy, assuming flexible interest and exchange rates, full capital mobility, and adaptive expectations. A scenario with successful international policy coordin ation illustrates how the model works. Copyright 1987 by The editors of the Scandinavian Journal of Economics.