Nowcasting Tells the Story: Norway’s Been Fixed

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Nowcasting Tells the Story: Norway’s Been Fixed


Category: Financial / Investment

If Norwegian central bank governor Oystein Olsen is looking for backing to start normalizing monetary policy after years of record stimulus, he should be reading the newspapers.

 Or better yet, he could just take a look at Norway’s Financial News Index, a big data tool that plows through financial media for clues on the economy. It’s now showing, along with other indicators, that the economy is expanding above average.

Perhaps even more gratifying for the central bank is the fact that, as the economy of western Europe’s biggest petroleum producer exits from the oil crash, evidence is also mounting that Norway has found new legs to stand on, according to Hilde Bjornland, an economics professor at the Norwegian Business School who helped develop the index.

“The recovery has been strong,” Bjornland said in an interview in Oslo. “We’re now growing above average, although there’s some uncertainty toward the end of the data.”

Norway’s central bank is preparing for an interest rate decision due to be announced on Sept. 21. The bank in June took the first tentative steps toward tightening policy for the first time in more than six years.

Developed by a team of researchers from the central bank and the Norwegian Business School, the index is based on an algorithm that plows through a swathe of articles published by the local financial media. Big data analysis then construes an index based on a weighing of positive and negative news to produce a real-time gauge of the economy.

To find out more about Norway’s “newsy coincident index”, click here

Its most recent reading provides further evidence that the Norwegian economy has regained momentum. And as the country continues to diversify away from oil and gas extraction, it also shows that less traditional industries, such as tech start-ups and tourism, are emerging as new engines.

The science of “nowcasting” had been relatively absent in Norway until recently. Bjornland argues that this type of analysis can quickly capture changes in the economy, making it an important tool for policy makers. The index has already shown it was a better predictor of the recession in the early 2000s than market indicators such as stocks or bonds.

Bjornland notes that there’s now plenty of anecdotal evidence to suggest the economy is improving. For instance, consumer confidence has been rising steadily since the start of the year. “And now we have an indicator that says it with numbers,” she said.

The data should be particularly useful for the central bank.

“They are supposed to fix interest rates in an uncertain world, they need projections,” said Bjornland. “But if they start off on the wrong footing, if they think things are bad when they’re actually good, that would produce the wrong policy.”

Source: Bloomberg