THE ROLE OF MONETARY POLICY DURING THE COVID-19
PANDEMIC
GOVERNOR ØYSTEIN OLSEN
Oslo, 6 October 2020
Historical decline in GDP¹⁾
-1.3
-3.7 -2.5
0.2
-2.2
-9.0
-11.8
-19.8
-8.3 -6.3
-25 -20 -15 -10 -5 0 5
US Euro area UK Sweden Mainland Norway
Q1 Q2
1) Quarterly change. Percent. Seasonally adjusted.
2
Sources: Refinitiv Datastream, Statistics Norway and Norges Bank
3
A dramatic six months
Gradual improvement
75 80 85 90 95 100 105
2017 2018 2019 2020 2021 2022 2023 0
5 10 15 20 25 30
4
1) Index. February 2020 = 100. 2) Registered unemployment. Share of labour force. Percent.
Sources: Norwegian Labour and Welfare Administration (NAV), Statistics Norway and Norges Bank
Mainland GDP
1)(l.h.s.)
Unemployment
2)(r.h.s.)
Private consumption during the pandemic
More goods, less services consumption
2)Decreasing consumption
1)
5
1) Annual change. Percent. 2) Constant prices. In billions of NOK.
Sources: Statistics Norway and Norges Bank
-14 -10 -6 -2 2 6 10
2019 2020 2021 2022 2023
Private consumption Real disposable income
120 140 160 180 200
Mar-19 Sep-19 Mar-20 Sep-20
Goods purchases Services
Projections
September
Consequences of the Covid-19 pandemic
… for the coming year. 1)
6
1) The four responses ticked most out of 19 possible alternatives. Share of businesses. Percent.
Source: Norges Bank
0 10 20 30 40 50 60 70 80 90 100 Lower investment
Increased investment in new technology
Increased remote working
Less travelling
Higher unemployment among young people 1)
0 2 4 6 8 10 12 14 16
Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20
Aged 20-39
Aged 40 and over
7
1) Registered unemployment. Percentage of labour force in age group.
Sources: Norwegian Labour and Welfare Administration (NAV) and Norges Bank
Measures adopted by Norges Bank
-1 0 1 2 3 4 5 6
2006 2008 2010 2012 2014 2016 2018 2020
Policy rate reduced from 1.5 to zero percent
8
Source: Norges Bank
Measures adopted by Norges Bank
-1 0 1 2 3 4 5 6
2006 2008 2010 2012 2014 2016 2018 2020
Policy rate reduced from 1.5 to zero percent
Extraordinary F-loans in NOK and USD
– Longer maturity
– Eased collateral requirements
9
Source: Norges Bank
Measures adopted by Norges Bank
-1 0 1 2 3 4 5 6
2006 2008 2010 2012 2014 2016 2018 2020
Policy rate reduced from 1.5 to zero percent
Extraordinary F-loans in NOK and USD
– Longer maturity
– Eased collateral requirements
Purchases of NOK
10
Source: Norges Bank
Central bank balance sheets have expanded 1)
0 10 20 30 40 50 60 70
2008 2010 2012 2014 2016 2018 2020
Federal Reserve ECB
Bank of England Sveriges Riksbank Norges Bank
11
1) Total assets. Percentage of GDP.
Sources: Bloomberg, Statistics Norway and Norges Bank
Policy rates close to zero 1)
-2 0 2 4 6 8
Before After
Financial crisis of 2008
-2 0 2 4 6 8
Pre-pandemic Today
Covid-19 pandemic
12
Sources: Bloomberg, Refinitiv Datastream and Norges Bank .
1) Policy rates. Percent. US, UK, euro area, Japan, Sweden, Canada, Australia, New Zealand, Norway
Norges Bank’s forward guidance
13 -1
0 1 2 3
2014 2016 2018 2020 2022
Policy rate
1)-8 -6 -4 -2 0 2
2014 2016 2018 2020 2022
0 1 2 3 4 5
2014 2016 2018 2020 2022
CPI-ATE
2)0 1 2 3 4 5
2014 2016 2018 2020 2022
CPI
2)Output gap
1)1) Percent. 2) Four-quarter change. Percent.
Sources: Statistics Norway and Norges Bank
Time
Assume no lower bound
Source: Norges Bank
14
Nominal interest rate
Output gap Inflation
Time
Time Time Stops at zero No lower bound
0
0
r*
𝜋𝜋
∗Real interest rate
Time
Average inflation targeting
Source: Norges Bank
15
Real interest rate Nominal interest rate
Output gap Inflation
Time
Time Time Stops at zero
Average inflation target No lower bound 0
0
r*
𝜋𝜋
∗Weaker krone in a downturn 1)
0 1 2 3 4 5
-10 -5 0 5 10 15 20
2005 2008 2011 2014 2017 2020
Krone exchange rate Inflation (r.h.s.)
Inflation target (r.h.s.)
Financial crisis Oil price fall in
2014Covid-19 pandemic
16
1) Import-weighted exchange rate index (I-44). CPI-ATE. Four-quarter change. Percent.
Sources: Statistics Norway and Norges Bank
