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Hvor mye ren kjernekapital må bankene sette av ved utlån til næringseiendom?
Get PDFFinansdepartementet har foreslått et midlertidig minstekrav for hvor mye ren kjernekapital de største bankene må sette av bak norske næringseiendomslån. Næringseiendom er den næringen som har påført bankene størst tap i kriser. Siden tap på næringseiendomslån er lave i normale tider, bør kapitalkrav for slike lån bygge på tapserfaringer fra kriser. Mine beregninger tyder på at kapitalen som kreves med det foreslåtte minstekravet er stor nok til å dekke tapene som bankene hadde på næringseiendomslån under tilbakeslaget i 2002-03, men mindre enn tapene på slike lån under den norske bankkrisen i 1988-93. Det gjelder også dersom jeg antar at inntjeningen på næringseiendomslån dekker en del av tapene. På den annen side bør ikke minstekrav settes så høyt at det svekker bankenes insentiver til å yte lån med lav risiko. Det vil særlig ha betydning for utlånssegment med stor variasjon i kredittrisiko, slik som markedet for lån til næringseiendomsforetak. Samlet sett kan dette indikere at det foreslåtte minstekravet for næringseiendomslån er på et rimelig nivå.publishedVersio
State dependence of monetary policy across business, credit and interest rate cycles
Get PDFWe investigate how the business, credit and interest rate cycles affect the monetary transmission mechanism, using state-dependent local projection methods and data from 18 advanced economies. We exploit the time-series variation within countries, as well as cross-sectional variation across countries, to investigate this issue. We find that the impact of monetary policy shocks on output and most other macroeconomic and financial variables is smaller during periods of economic downturns, high household debt, and high interest rates. We then build a small-scale theoretical model to rationalize these facts. The model highlights the presence of collateral and debt-service constraints on household borrowing and refinancing as a potential cause for state dependence in monetary policy with respect to the business, credit, and interest rate cycles.publishedVersio
Liquidity at risk: Joint stress testing of solvency and liquidity
Get PDFThe traditional approach to the stress testing of financial institutions focuses on capital adequacy and solvency. Liquidity stress tests are often applied in parallel to solvency stress tests, based on scenarios which may not be consistent with those used in solvency stress tests. We propose a structural framework for the joint stress testing of solvency and liquidity: our approach exploits the mechanisms underlying the solvency-liquidity nexus to derive relations between solvency shocks and liquidity shocks. These relations are then used to model liquidity and solvency risk in a coherent framework, involving external shocks to solvency and endogenous liquidity shocks. We introduce solvency-liquidity diagrams as a method for analysing the resilience of a balance sheet to the resulting combination of solvency shocks and endogenous liquidity shocks. Finally, we define the concept of 'Liquidity at Risk' which quantifies the liquidity resources required for a financial institution facing a stress scenario.publishedVersio
Annual Address 2019
No full textAddress by Governor Øystein Olsen to the Supervisory Council of Norges Bank and invited guests, 14 February 2019.publishedVersio
Navigating with NEMO
Get PDFThis paper describes NEMO, the main dynamic stochastic general equilibrium model used at Norges Bank for monetary policy analysis and forecasting. NEMO has been used to identify the sources of business cycle fluctuations in Norway, to conduct scenario analysis, to produce macroeconomic forecasts, and to conduct monetary policy analysis. The model has recently been re-calibrated and re-estimated to reflect economic conditions since the introduction of inflation targeting in 2001 and other structural changes. This paper presents the estimation of the model using Bayesian methods. It then evaluates its dynamic properties through examining model-based sample moments, conducting impulse response analysis as well as historical shock and forecast-error-variance decompositions, and assessing its forecasting performance against a suite of empirical models. NEMO is used in combination with a broad set of data, empirical models and judgement to make forecasts for key variables in the Norwegian economy. Re-estimation and further development of NEMO are important for the model to continue to be a useful tool for monetary policy analysis.publishedVersio
Computing the Distribution: Adaptive Finite Volume Methods for Economic Models with Heterogeneous Agents
Get PDFSolving economic models with heterogenous agents requires computing aggregate dynamics consistent with individual behaviors. This paper introduces the finite volume method from the mathe-matics literature to enlarge the set of numerical methods available to compute dynamics in continuous time. Finite volume discretization methods allow theoretically consistent dimensional and local adaptivity that guarantee the mass conservation and positivity of the distribution function of the discretized system. This paper shows examples of 1) the Ornstein-Uhlenbeck process 2) the Aiyagari-Bewley-Huggett (wealth+income heterogeneity) model and 3) the lifecycle (wealth+income+age heterogeneity) model. The numerical exercises show that for the current dimensionality of the problems in economics, the finite volume method (with or without adaptivity) outperforms pre-existing methods. This paper further provides a companion open-source implementation of the finite volume method at github.com/sehyoun/adaptive_finite_volume to reduce the testing time of the finite volume method.publishedVersio
“Leaning Against the Wind”, Macroprudential Policy and the Financial Cycle
Get PDFShould monetary policy lean against financial stability risks? This has been a subject of fierce debate over the last decades. We contribute to the debate about “leaning against the wind” (LAW) along three lines. First, we evaluate the cost and benefits of LAW using the Svensson (2017) framework for the euro area and find that the costs outweigh the benefits. Second, we extend the framework to address a critique that Svensson does not consider the lower frequency financial cycle. Third, we use this extended framework to assess the costs and benefits of monetary and macroprudential policy. We find that macroprudential policy has net marginal benefits in addressing risks to financial stability in the euro area, whereas monetary policy has net marginal costs. This would suggest that an active use of macroprudential policies targeting financial stability risks would alleviate the burden on monetary policy to “lean against the wind”.publishedVersio
Negative Nominal Interest Rates and the Bank Lending Channel
Get PDFFollowing the crisis of 2008, several central banks engaged in a new experiment by setting negative policy rates. Using aggregate and bank level data, we document that deposit rates stopped responding to policy rates once they went negative and that bank lending rates in some cases increased rather than decreased in response to policy rate cuts. Based on the empirical evidence, we construct a macro-model with a banking sector that links together policy rates, deposit rates and lending rates. Once the policy rate turns negative, the usual transmission mechanism of monetary policy through the bank sector breaks down. Moreover, because a negative policy rate reduces bank profits, the total effect on aggregate output can be contractionary. A calibration which matches Swedish bank level data suggests that a policy rate of - 0.50 percent increases borrowing rates by 15 basis points and reduces output by 7 basis points.publishedVersio
Evaluation of Norges Bank’s projections for 2017
Get PDFNorges Bank's projections for economic developments, both in Norway and among Norway's main trading partners are an important basis for the formulation of monetary policy. Evaluations and analyses of forecast errors can enhance Norges Bank's understanding of the functioning of the economy and improve the Bank's forecasts. Norges Bank's projections for economic developments are therefore evaluated annually. This article starts with a brief overview of economic developments in 2017. This is followed by a comparison of Norges Bank's projections for 2017 with actual developments, and deviations are assessed in the light of historical forecast errors. Furthermore, the Bank's projections are compared with the projections of other forecasters in Norway. Projections for the global economy will be evaluated in a separate Norges Bank Paper. The annual projection for mainland GDP in 2017 from Monetary Policy Report 4/16 proved to be a fairly accurate forecast of actual developments. The projection for employment growth proved to be somewhat low, while registered unemployment fell more than expected. Also consumer price inflation as measured by the CPI-ATE and annual wage growth were lower than expected.publishedVersio