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Financial imbalances, crisis probability and monetary policy in Norway

Ragna Alstadheim (), Ørjan Robstad and Nikka Husom Vonen
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Ørjan Robstad: Norges Bank (Central Bank of Norway)
Nikka Husom Vonen: The Ministry of Labour and Social Affairs

No 2017/21, Working Paper from Norges Bank

Abstract: We assess the strength of the impact of a monetary policy shock on financial crisis probability in Norway. Policy effects go via the interest rate impact on credit, house prices and banks’ wholesale funding. We find that the impact of a monetary policy shock on crisis probability is about 10 times larger than what previous studies suggest. The large impact is mostly due to a fall in property prices and banks’ wholesale funding in response to a contractionary monetary policy shock. In contrast, and in line with existing literature, there is a more limited contribution to reduced crisis probability from the impact of monetary policy on credit.

Keywords: Monetary Policy; Financial Imbalances; Financial Crisis; Structural VAR (search for similar items in EconPapers)
JEL-codes: E32 E37 E44 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2017-10-26
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2017_21

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