Øystein Olsen: Oil and the Norwegian economy – the challenges ahead Speech by Mr Øystein Olsen, Governor of the Norges Bank (Central Bank of Norway), at a lunch hosted by Danske Bank Markets, New York City, 27 March 2015. *  *  *  Accompanying slides can be found on the Norges Bank’s website: Slides (PDF). It’s a great pleasure to be in New York City again and an honour to be invited to give a lunch presentation here today. As Norges Bank, a week ago, published its latest monetary policy report, the economic outlook and the considerations behind the interest rate decision naturally warrant some attention in my speech today. First, however, I would like to give some background information on the economic policy framework in Norway, focusing on the sovereign wealth fund – the Government Pension Fund Global – the fiscal rule and Norges Bank’s foreign exchange transfers to the fund. Norway is a small, open, natural resource-rich economy. About a quarter of our GDP is related to oil and gas extraction, and a large share of our petroleum production is exported. The oil and gas industry has played a vital role for the strong growth in our economy over the past 40 years. When the first oil was brought to the surface in 1971, GDP per capita in Norway was lower than the average for a western economy. The picture has reversed since then. We have gradually caught up to the wealthiest nations.
Page 7  Table 1: Changes in Global R* from structural and empirical models Structural model  Baseline Range  1985–2015  -1.9  (-3.3, -1.1)  Productivity growth -0.9  (-1.2, -0.3)  Population growth  -0.1  (-0.5, -0.0)  Longevity  -1.0  (-1.8, -0.8)  Empirical model  Median  5%–95%  1985–2015  -1.9  (-2.4, -1.3)  Of which:  Note: For the structural model, the table reports the estimate of Global R* in the baseline simulation, together with the minimum and maximum across the sensitivity tests. For the empirical model, the table reports the median estimates of Global R* together with the 95 percent posterior intervals. Source: Cesa-Bianchi et al. (2022). Table 1 shows that, in the structural model, Global R* falls markedly between 1985 and 2015. The total decline of 1.9 percentage points is driven by the response to the five global trends mentioned earlier. [9] The baseline structural model simulation matches the median change over the same period from the statistical model in the earlier chart (reported in the last row of the table), though both are subject to a wide range of uncertainty. [10] With respect to the main drivers of this decline, two factors – population ageing and a slowdown in productivity growth – play the largest roles in explaining the dynamics of Global R*. The productivity growth slowdown across advanced economies has been discussed extensively in existing work.