Norges Bank

Staff Memo

What explains developments in business investment?

Henrik Andersen and Mari Aasgaard Walle
Staff Memo

Business investment plays a crucial role in cyclical developments in the Norwegian economy. Mainland business investment has been relatively weak since the financial crisis erupted in autumn 2008, even though the key policy rate in Norway has been reduced to a historically low level. Estimations for the period 2003-2014 suggest that investment in the post-crisis period was restrained by weak future prospects and limited access to funding, while the decline in the interest rate level in isolation helped support investment. When future prospects improve, investment may rise considerably faster than mainland GDP. Our calculations indicate that the long-term equilibrium level of business investment as a share of GDP is around 10 percent, approximately 1 percentage point higher than the current level.

Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.

ISSN 1504-2596 (online)

Published 2 July 2015 10:32
Published 2 July 2015 10:32