Bjornland & Thorsrud: What is the effect of an oil price decrease on the Norwegian economy?


In this note we summarize the effect of a fall in oil prices on a small oil producer; Norway. The results are based on the model put forward in Bjørnland and Thorsrud (2014). We separate between two orthogonal shocks that can drive oil prices; A global activity (i.e., demand) shock and a commodity specific price (i.e., supply) shock. We first briefly explain the main implications of the model, before tracing out the effects of a fall in oil prices of 25 percent. In the end we compare the results with some previous studies analysing the effects of an oil price shock on the Norwegian economy, including Bjørnland (2000) and Peersman and Van Robays (2012).


Available for download here.