Nonlinearities in the relationship between oil price changes and movements in the Norwegian krone
- Saskia ter Ellen
- Staff Memo
Anecdotal evidence as well as previous empirical analysis indicates that the relation between oil price changes and movements in the Norwegian krone is not stable over time. We can observe that there is no or only a weakly significant correlation between oil price changes and Norwegian krone depreciation in some periods, but a strong correlation in other periods. This memo proposes some explanations for these nonlinearities and summarizes the results of empirical tests conducted to investigate the nonlinearities in the oil price-Norwegian krone relation. It is found that the Norwegian krone reacts stronger to oil price changes when these are larger than average, and that the most relevant threshold level for the 2014 price drop was USD 75.
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)