Import price formation and pricing to market: A test on Norwegian data

This paper investigates the determinants of Norwegian import prices of manufactures over the period 1970(1) - 1991(4). Multivariate cointegration analysis establishes a long-run relationship between import prices, foreign prices, the exchange rate and domestic unit labour costs. Normalized on import prices, the long-run elasticities are 0.63 (foreign prices and the exchange rate) and 0.37 (domestic costs). Deviations from this relationship are highly significant in a structural import price equation, which also contains positive effects of growth in domestic demand and inflation, as well as a negative effect from the Norwegian unemployment rate. The estimated parameters appear reasonably stable within the sample. Keywords: Import price formation, pricing to market, domestic effects, Johansen procedure, structural error correction model, super exogeneit

Evaluation of Norges Bank’s Projections for 2008

Inflation in 2008 was significantly higher than Norges Bank projected in autumn 2007. This was to a large extent due to an unexpected slowdown in productivity growth and to the rise in prices for commodities and manufactured goods abroad being unexpectedly high through to last autumn. In addition, capacity utilisation was higher than expected up until the summer. The global financial crisis led to weaker-than-projected exports and private demand in mainland Norway. Capacity utilisation was therefore lower than expected at the end of the year. The accuracy of Norges Bank’s projections of developments in 2008 was broadly in line with those of other forecasters

How Much of a Tailwind Have We Had from the Weaker Krone?

It is usual to assume that a weaker currency will stimulate exports and improve the balance of trade. Despite the krone’s depreciation in recent years, however, exports have grown little and the non-oil trade deficit has widened. This raises questions about what effects the weaker krone has actually had. We find that exports would probably have been much lower without the depreciation of the krone. Our conclusion, therefore, is that there has been a significant tailwind

Etterprøving av Norges Banks anslag for 2008

Prisveksten i 2008 ble vesentlig høyere enn hva Norges Bank anslo høsten 2007. Det har sammenheng med at produktiviteten utviklet seg svakere enn ventet, og at prisene på råvarer og industrivarer i utlandet økte uventet mye fram til i fjor høst. I tillegg var kapasitetsutnyttingen høyere enn ventet fram til sommeren i fjor Den internasjonale finanskrisen bidro til at eksporten og den private etterspørselen i Fastlands-Norge utviklet seg svakere enn anslått. Kapasitetsutnyttingen var dermed lavere enn ventet ved slutten av året. Norges Bank anslo utviklingen i 2008 om lag like godt som andre prognosemakere

Etterprøving av Norges Banks anslag for 2008

Prisveksten i 2008 ble vesentlig høyere enn hva Norges Bank anslo høsten 2007. Det har sammenheng med at produktiviteten utviklet seg svakere enn ventet, og at prisene på råvarer og industrivarer i utlandet økte uventet mye fram til i fjor høst. I tillegg var kapasitetsutnyttingen høyere enn ventet fram til sommeren i fjor Den internasjonale finanskrisen bidro til at eksporten og den private etterspørselen i Fastlands-Norge utviklet seg svakere enn anslått. Kapasitetsutnyttingen var dermed lavere enn ventet ved slutten av året. Norges Bank anslo utviklingen i 2008 om lag like godt som andre prognosemakere

What Influences the Growth of Household Debt?

Household debt has increased by 10–11 per cent annually since 2000. In the following, the factors underlying the strong growth in debt are analysed using an empirical model. The debt growth of recent years is found to be related to developments in the housing market and to the decline in interest rates since December 2002. As a result of the sharp rise in house prices from 1998 to 2001, debt growth remained at a high level while house prices declined in the latter half of 2002 and into 2003. This reflects that only a small portion of the housing stock changes hands each year. Even if house prices level off following a rise, there will be a long period during which houses change hands at a higher price than the last time they were sold. An increase in house prices will therefore contribute to debt growth for a long time. Households may increase their debt further by raising loans to finance consumption and investment with collateral in the increased value of their dwellings. This type of borrowing has probably increased in recent years

What Drives House Prices?

House prices have more than tripled since 1992. After having fallen during the last part of 2002 and the beginning of 2003, house prices rose by more than 20 per cent from May 2003 to November 2004. We analyse factors underlying the pronounced rise in house prices using an empirical model. We find that interest rates, housing construction, unemployment and household income are the most important explanatory factors for house prices. The analysis indicates that house prices react quickly and strongly to changes in interest rates. Thus, a considerable portion of house price inflation since May 2003 can be explained by the fall in interest rates in the last two years. Conversely, the fall in interest rates will only make a modest contribution to house price inflation in 2005. An interest rate increase in line with the interest rate path in Inflation Report 3/04 can in isolation lead to a 3-3½ per cent fall in house prices per year in 2006 and 2007. However, this interest rate path reflects an expected decline in unemployment and an expected increase in the growth of wage income. The model implies that house prices will increase by 2-4 per cent per year in the period 2005-2007 if interest rates, unemployment, income and housing construction develop in line with the analyses in Inflation Report 3/04. We find no evidence that house prices are overvalued in relation to a fundamental value determined by interest rates, income, unemployment and housing construction

Estimating New Keynesian Import Price Models

We estimate a range of New Keynesian import price models for Norway and the UK. Contrary to standard pass-through regression analysis, this approach allows us to make a distinction between the parameters in theoretical price-setting rules and parameters in the expectations mechanisms. We find positive and significant effects of expected future import price growth for Norway. The estimates for the UK do not lend much support to the hypothesis that pricesetting rules are forward-looking. For both countries, the results favour a specification that incorporates both local- and producer currency pricing, but no effect of lagged import price growth. We find mixed evidence of pricing-to-market: only for the UK do the results suggest a role for domestic prices or costs in explaining import prices.publishedVersio