Does Norges Bank's trading in the foreign exchange market on behalf of the government affect the NOK exchange rate?

Abstract

This thesis attempts to find a connection between the Central Bank of Norway’s trading in the foreign exchange market and the NOK-EUR exchange rate. The central bank is designated to handle currency transactions related to the non-oil government budget deficit. Theory says these transactions should not affect the long-term exchange rate (Aamodt, 2014). In investigating this, relatively newly collected foreign exchange transactions data is applied using a multivariate regression model (Rime & Sojli, 2006). The data is thoroughly analyzed, sourced from credible sources, and variations of the original model are run as a means of investigating from a different point of view. When using the data on a level form the results are mixed; one model produces no significant results, and another provides some evidence for a short-term effect. By analyzing the data after looking at the weekly changes, one model finds strong statistical significance, and another finds evidence for a long-term effect. The latter findings contradict theory, and as a result are of interest for further research.