The Corona-crisis, structural change, and macroeconomic policy

22 March 2021

Professor Hilde C. Bjørnland heads new research project in collaboration with Norwegian, Australian and U.S. researchers.

A fundamental problem with current economic models is that they assume stable economic relationships for example between industrial sectors, production, employment, and capital. Looking ahead, that is clearly inadequate.

The Corona pandemic has had a dramatic impact on business and society, and it is unlikely that the global economy will return to a pre-2020 normal. Even as the coronavirus starts to recede, we remain at the beginning of a global climate crisis set to fundamentally change the economy.

The pace of change is increasing, and policy makers need tools that can monitor the economy in real time and theories able to capture structural economic change.

The research project ‘MACROCAMP’ seeks to address this gap.

It has been awarded NOK 12 million by the Research Council of Norway and is due to begin in the summer of 2021 and finish in the spring of 2024. The project is led by Professor Hilde C. Bjørnland (BI) in cooperation with Associate professor Leif Anders Thorsrud (BI), Professor Ragnar Torvik (NTNU), and researchers from the Australian National University, Indiana University and Norges Bank.

Crisis and early warning system

The main idea behind the project is to combine different data sources, alternative methodological approaches and new economic theories to study drivers of economic crises, structural changes and the effect of economic policy.

“The Corona-crisis is an unprecedented event which has generated some of the largest business cycle swings ever recorded. If we manage to better predict and prepare for such an event in the future, it would improve welfare”, says project leader Hilde C. Bjørnland.

The first part of the project will explore the possibility of setting up an early warning system for global incidents such as the pandemic and analyze how the pandemic and subsequent policy actions have affected the three small open economies Australia, Norway and Sweden.

As a part of the project, the researchers will use machine learning and natural language processing technologies, and alternative data sources, such as daily media coverage of economic news to capture signals of economic developments.

Understanding structural change

To better understand the impact of economic shocks such as the COVID pandemic or the 2008 financial crisis, there is a need for new economic models and analysis.

The second part of the project will study how crisis events affect ongoing structural changes in the economy and discuss the role of economic policy in such transformations.

“We especially focus on how the economy changes due to large shocks and permanent changes, such as the corona crisis, the green transition and persistent petroleum market changes,” says Bjørnland.

In the final part, the researchers will extract detailed micro data to understand how structural change and large macroeconomic shocks affect individual firms and households behaviour, and study the macroeconomic implications of such microeconomic behaviour.

You can also see all news here.