What Drives the Output Gap in Norway? Evidence from a multivariate Beveridge-Nelson decomposition

Abstract

We estimate the trend and cycle of real GDP in Norway using a multivariate Beveridge–Nelson decomposition with a large information set. This method allows us to identify a small collection of variables that are major business cycle drivers. Using a dataset of 76 variables covering various sectors of the economy, we find that the implied output gap measure accounts for all historical recessions between 1983 and 2021 and reveals a minimal set of variables that are important drivers of the business cycle: Unemployment, Total Reserves, GDP growth, Government Final Consumption Expenditure, Wages, Sight Deposit Rate, Income, Hours Worked, and Private Final Consumption Expenditure.