Abstract

We investigate possible effects on the Norwegian equilibrium real exchange rate of hypothetical restrictions on the extraction of petroleum resources motivated by climate goals. In our analytical framework, the equilibrium real exchange rate is affected by the permanent income from net foreign assets, including the Government Pension Fund Global (GPFG) and the present value of available petroleum resources. Our empirical analysis suggests that extraction restrictions may contribute only to a modest depreciation of the equilibrium real exchange rate. The depreciation increases with the scope of extraction restrictions but may be partly offset by a potential rise in petroleum prices resulting from these restrictions. If the real rate of return on the GPFG is higher than that on petroleum resources, a faster pace of extraction and transfer of petroleum revenues to the GPFG may also reduce exchange rate depreciation.