Model invariance and constancy in the face of large shocks to the Norwegian macroeconomic system

Models used for forecasting and to help shape economic policy contain relationships that have been estimated on data from before Covid-19, and thus from before lockdowns, falls in economic activity and high unemployment rates. An important question for model users is therefore how the relationships that represented normal behavior for businesses and households before Covid-19 have been affected by the pandemic and by the policy response. One goal of the project is to close this knowledge gap. Another goal is to contribute to the development of methods that can reduce the negative consequences for model-based projections and analyses of future pandemics and other crises. This will include methods that can contribute to the relatively rapid detection of breaks in relationships, so that implications for economic policy can be assessed quickly, which can affect how well the economy emerges from future crises. The project will include investigations of how past crises have affected the behavioral relationships of the models, especially the financial crisis of 2008/09 and the crisis triggered by the fall in oil prices in 2015/16. These crises originated in different parts of the economic system, and the policy response was therefore also different. More knowledge about the degree of robustness of model relationships during the different crises can increase the usefulness of the models in the future. During a pandemic, policy measures will be motivated by life and health. However, the policy approach will have consequences for the economy as a whole. The project will explore the possibilities for simultaneous projection of health and the economic system, which is a major research challenge in the field. The Covid-19 crisis has affected the national economy in all countries. The project therefore contains comparative analyses. The purpose is to investigate whether institutional differences and different policy responses have affected economic activity, inequality and unemployment during and after the crisis.