Banks' profitability is their first line of defence against losses, and net interest income is banks' main source of revenue. Since the policy rate hikes began in 2021, net interest income has increased substantially relative to assets, strengthening banks' loss-absorbing capacity. We use a VAR...

Banks' profitability is their first line of defence against losses, and net interest income is banks' main source of revenue. Since the policy rate hikes began in 2021, net interest income has increased substantially relative to assets, strengthening banks' loss-absorbing capacity. We use a VAR...

The purpose of the "counter-cyclical capital buffer" (buffer) is to dampen procyclicality in the financial system, absorb capital losses and prevent a credit crunch during recessions. In this paper, a stylized analytical expression for optimal buffer policy is presented. Results are derived...

Growth in deposits and broad money aggregates surged in Norway after the outbreak of the Covid-19 pandemic. Usually, we think of deposit (or money) growth as going hand in hand with bank lending growth, since only banks can create money. But lending did not grow much more than usual in this...

The Norwegian public sector has net financial assets. The fiscal theory of price determination applies equally to Norway and economies with net public debt: If primary surpluses evolve independently of nominal debt (or assets), the price level has to adjust to satisfy the intertemporal budget...

We consider standard monetary-policy rules with inflation-rate targets and interest-rate or money-growth instruments using a flexible-price, perfect foresight model. There is always a locally-unique target equilibrium. There are also below-target equilibria (BTE) with inflation always below...

With sticky prices, optimizing agents and money in the utility function, I derive the exact analytical solution for optimal monetary policy given a zero lower bound (ZLB) on the interest rate. The Phillips curve is Neo-Classical, and the ZLB is then not a constraint on optimal policy. Optimal...

Do central banks respond to exchange rate movements? According to Lubik and Schorfheide (2007) who estimate structural general equilibrium models with monetary policy rules, the answer is "Yes, some do". However, their analysis is based on a sample with multiple regime changes, which may bias...

I provide a generalization of Calvo price setting, to include non-overlapping contracts as a special case and embed this in a small DSGE model. The resulting Generalized Phillips Curve (GPC) nests New-Keynesian and Neoclassical versions. I linearize the model around a potentially non-zero trend...

Monetary policy makers often seem to have preferences for a stable interest rate, in addition to stable inflation and output. In this paper we investigate the implications of having an interest rate level term in the loss function when the policymaker lacks commitment technology. We show that...