Problems of Monetary Control in Norway

Abstract

Monetary policy in Norway was not always as effective as intended by the authorities, particularly not in the period prior to and following the first oil price shock in the 1970s. The predominant financial determinant of economic activity was credit provided to private and municipal investors. Cyclical monetary control was exercised by the availability rather than the cost of credit. Control problems emerged when in the first half of the 1970s bank credit did not respond to the tightening of bank liquidity, as part of the excess demand for credit was attracted to an unregulated market with relatively high interest rates. To overcome the deficiency that some credit channels were not included in the policy indicators, this paper suggests a switch from a credit indicator to a more broadly defined monetary indicator. Towards this end, a monetary base concept for Norway is developed.

Keywords: Monetary policy, Norway

JEL Classification: E50