The dynamics of energy prices and the Norwegian economy: A common trends and common cycles analysis

Abstract

Considering the significance of the oil and gas sector to the Norwegian economy, this study investigates the short-term and long-term associations between crude oil and natural gas prices, and the real GDP of Norway. To this end, we employ a common-feature-based, multivariate trend-cycle decomposition approach to examine common trends and common cycles between them. Upon isolating the trend and cyclical components of the three series, this study finds a negative association between the real GDP and the two energy prices both in the short-run as well as in the long-run. This result contradicts the commonly-held view that the performance of energy-exporting economies is positively associated with energy prices. The test results also find that the cycles of natural gas prices follow the cycles of oil prices.