Financial Imbalances, Crisis Probability and Monetary Policy in Norway

39 Pages Posted: 20 Nov 2017

See all articles by Ragna Alstadheim

Ragna Alstadheim

Norges Bank

Ørjan Robstad

Norges Bank

Nikka Husom Vonen

Ministry of Labour and Social Affairs

Date Written: October 26, 2017

Abstract

We assess the strength of the impact of a monetary policy shock on financial crisis probability in Norway. Policy effects go via the interest rate impact on credit, house prices and banks' wholesale funding. We find that the impact of a monetary policy shock on crisis probability is about 10 times larger than what previous studies suggest. The large impact is mostly due to a fall in property prices and banks' wholesale funding in response to a contractionary monetary policy shock. In contrast, and in line with existing literature, there is a more limited contribution to reduced crisis probability from the impact of monetary policy on credit.

Keywords: Monetary Policy, Financial Imbalances, Financial Crisis, Structural VAR

JEL Classification: E32, E37, E44, E52

Suggested Citation

Alstadheim, Ragna and Robstad, Ørjan and Vonen, Nikka Husom, Financial Imbalances, Crisis Probability and Monetary Policy in Norway (October 26, 2017). Norges Bank Working Paper 21/2017. Available at SSRN: https://ssrn.com/abstract=3073747 or http://dx.doi.org/10.2139/ssrn.3073747

Ragna Alstadheim (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Ørjan Robstad

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Nikka Husom Vonen

Ministry of Labour and Social Affairs ( email )

Akersgata 59
Oslo, 0180
Norway

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