Output and Prices in Norway

Ola H Grytten

NHH and Norges Bank

Classical Keynesian view

Short term output fluctuations are demand side led

Thus, price fluctuations should mirror output fluctuations

Hence, inflation targeting is a way of monitoring counter cyclical monetary policy

Challenging the Keynesian view

Empirical research has challenged the notion of co-movement of prices and output Haan 2000

Some correspondence in the US after WWII. Stock and Watson 1998, King and Rebelo 2000

Lack of correspondence in the US during the last decades

Husebø og Wilhelmsen 2005 Lack of correspondence in Norway during the last

decades

Historical findings for Norway

Do prices and output correlate in the short run in Norway? Output series

Aggregated GDP from 1830 onwards

Disaggregated for parts only Price series

Aggregated CPI from 1516 onwards

Aggregated and disagregated Implicit deflators from HNA

Historical GDP-figures

Nordic project aiming at constructing Nordic historical national accounts (NHNA)

HMS Norwegian historical national accounts (HNN)

1830 - present (Grytten 2004) Major indicators GDP 1830 - 1865 (Grytten 2004) GDP 1865 - present (Statistics Norway 2008)

Historical CPI-prices Norwegian CPI 1516-present (Grytten 2004)

Part of HMS Grain prices 1516-1666 (Aschehoug 1888) Consumer commodities 1666-1819 (Grytten 2004) CLI 1819-1830 (Grytten 2004) CLI 1830-1871 (Grytten 2004) CLI 1871-1910 (Ramstad 1982) CLI 1910-1916 (KSO) CLI 1916-1919 (MSA) CLI 1919-1959 (SSB) CPI 1959-2008 (SSB)

CPI and GDP per capita volumes 1830-2006

1

10

100

1000

10000

100000

1000000

18301838184618541862187018781886189419021910191819261934194219501958196619741982199019982006

CPI

Yn/c

Yr/c

Annual changes output and prices

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

18301837184418511858186518721879188618931900190719141921192819351942194919561963197019771984199119982005

CPI

Yr/c

Annual changes output and prices 7YSMA

0.9

1

1.1

1.2

18301839184818571866187518841893190219111920192919381947195619651974198319922001

CPI

Yr/c

Output and price cycleslogCt-logTt (T=HP-filtered trend)

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

183018401850186018701880189019001910192019301940195019601970198019902000

CPI

Yr/c

Output and price cycles7YSMA logCt-logTt

-0.20

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

183018401850186018701880189019001910192019301940195019601970198019902000

CPI

Yr/c

Table 1. Correlation coefficients on HP-cycles GDP per capita volumes and CPI 1830-2006.

1830-1913 1913-1952 1952-2006 1830-2006

Annual

Simultaneous -0.0813 -0.3824** -0.1901 -0.2645** 0.4699 0.0162 0.1605 0.0004

1 year price-lag 0.2342** -0.3102* -0.0091 -0.1162 0.0342 0.0584 0.9474 0.1257

2 years price lag 0.2706** -0.1852 0.1937 -0.0242 0.0146 0.2725 0.1605 0.7513

1 year price lead -0.1214 -0.3461** -0.2104 -0.2807** 0.2773 0.0333 0.1231 0.0002

2 years price lead -0.1696 -0.2741 -0.0533 -0.2365** 0.1301 0.1007 0.7013 0.0017

7YSMA

Simultaneous 0.1029 -0.4896** -0.2086 -0.4070** 0.3637 0.0016 0.1418 0.0000

1 year price-lag 0.3471** -0.2837* -0.0743 -0.2465** 0.0017 0.0843 0.6081 0.0012

2 years price lag 0.4561** -0.0556 0.0579 -0.0663 0.0000 0.7438 0.3448 0.3932

1 year price lead -0.1103 -0.6099** -0.3780* -0.5165** 0.3332 0.0000 0.0062 0.0000

2 years price lead -0.2686** -0.6258** -0.4798** -0.5511** 0.0174 0.0000 0.0004 0.0000

Preliminary conclusions

Difficult to trace positive correspondence between short-term prices and output in Norway 1830-2006.

Some differences between sub-periods Need further investigation

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