NEMO is based on the assumption that Norway with a national currency can determine its own inflation rate over time. Therefore, a model requirement is that monetary policy anchors inflation expectations and brings inflation back to target. In the model, it is assumed that economic agents take monetary policy into account and look ahead when making decisions concerning consumption, investment, wages and prices.

NEMO is a new-Keynesian DSGE model (dynamic stochastic general equilibrium model) with Keynesian features in the short to medium term and classical features in the long term. This means that due to the stickiness of prices and wages monetary policy can influence demand and thereby output and employment in the short and medium term. In the long term, however, output is determined by technology, preferences and the supply of factor inputs. NEMO is estimated using Norwegian data as a system based on a Bayesian approach.

References

• "Handling structural break points in NEMO", Erling Motzfeldt Kravik and Kenneth Sæterhagen Paulsen ( Staff Memo 2/2020)
• "Navigating with NEMO", Erling Motzfeldt Kravik and Yasin Mimir (Staff Memo 5/2019)
• "Documentation of NEMO - Norges Bank's core model for monetary policy analysis and forecasting", Karsten R. Gerdrup, Erling Motzfeldt Kravik, Kenneth Sæterhagen Paulsen and Ørjan Robstad (Staff Memo 8/2017)
• "Financial factors and the macroeconomy - a policy model", Leif Brubakk and Paolo Gelain (Staff Memo 10/2014)
• "Effects of a new monetary policy loss function in NEMO", Kathrine Lund and Ørjan Robstad (Staff Memo 10/2012)
• "Credit, asset prices and monetary policy", Leif Brubakk and Gisle Natvik (Staff Memo 13/2010)
• "Simple rules versus optimal policy: what fits?", Ida Wolden Bache, Leif Brubakk and Junior Maih (Working Paper 3/2010)
• "NEMO – A new macro model for forecasting and monetary policy analysis", Leif Brubakk og Tommy Sveen (Economic Bulletin 1/2008)
• "Finding NEMO: Documentation of the Norwegian economy model", Leif Brubakk, Tor Anders Husebø, Junior Maih, Kjetil Olsen and Magne Østnor (Staff Memo 6/2006)