Abstract
The natural rate of interest is an important theoretical concept in economics. In this thesis, it is defined as the real return to a safe short-term asset, like the short-term government bill, consistent with gross domestic product (GDP) on its potential and when transitory shocks have abated. The natural rate of interest is an abstract concept and estimates are model-dependent. Following the work of Del Negro et al. (2019), modelling the low-frequency natural rate of interest with international capital mobility and the presence of convenience yields, estimates for Norway and nine other advanced economies are calculated. The econometric approach is Bayesian VARs with common trends, which is estimated using a Kalman filter. The study adopts an open economy modelling framework, which is of clear relevance for the Norwegian economy. It has not been systematically utilized before in existing studies of the natural interest rate in Norway. The open economy model links the natural interest rate in Norway to the global rate, and this is reflected in the estimated natural rate. This thesis therefore contributes with new estimates of Norway’s natural rate of interest, as well with discussion of theoretical and econometric challenges connected to estimations of that theoretical (ideal) concept. In addition, some implications for Norway are discussed. The overall assessment indicates that Norway’s real natural rate of interest lies at around zero percent in 2021. The study shows that it has been declining over the last decades. Further, estimates also show that Norway’s real natural rate of interest has co-moved with the real natural rate of interest of several advanced economies in the last decades. The estimates differ somewhat from each other. As some results seem to be not in line with what to be expected, care should be taken when interpreting the results.