| dc.description.abstract | This thesis studies the effects of terms of trade changes on the Norwegian economy by applying a dynamic stochastic general equilibrium framework with a sovereign wealth fund, a housing sector and finitely-lived households. The main innovation of this thesis is to explicitly model the Norwegian fiscal rule as a transmission channel for oil price shocks. Following higher oil prices, the sovereign wealth fund increases, subsequently increasing the real return and future transfers from the fund. The fiscal rule therefore effectively acts to transform temporary oil price changes into near permanent shocks to the Norwegian economy. The model is able to replicate key features of the Norwegian economy during the last decade. In particular, following a strengthening in the terms of trade, there is an increase in consumption, real wages, housing prices and household debt levels, and the real exchange rate appreciates. There is further a divergence in the relative prices of intermediate goods, as import prices decrease while domestic prices increase. Another important result is that simulations of the model reveal that monetary policy is unable to stabilise the economy following oil price shocks within a short time-horizon. This is due to its inability to affect the main transmission mechanism, the sovereign wealth fund. Rather, to limit the effects of oil price shocks, I suggest to transform the Norwegian fiscal rule. I propose a new rule for the sovereign wealth fund, where nominal transfers from the fund grow by the rate of productivity and prices in the economy, ensuring that transfers are independent of the oil price and thereby eliminating the transmission channel of oil price shocks. | eng |