Norges Bank

Staff Memo

Oil price shocks and the Norwegian effective exchange rate – an SVAR approach

Saskia Ter Ellen and Kjetil Martinsen
Staff Memo

We employ a structural VAR model to investigate direct and indirect effects of oil price changes on the Norwegian effective exchange rate (I44). The model is estimated on different subsamples and with different model specifications. Our main finding is that the direct effect of oil price shocks on the I44 has increased over time, independent of the model specification we choose. Furthermore, an increasing impact of oil shocks on interest rates and an increased impact of interest rates on the I44 account for the rise in the indirect impact of oil on the I44 over time. We further find that long (short) term interest differentials become relatively more (less) important for explaining movements in the I44 during recent samples. A possible interpretation could be the (zero) lower bound and unconventional monetary policy conducted by Norway's trading partners.

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 8 September 2016 10:00
Published 8 September 2016 10:00