Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 110: The Effect on the Swedish Real Economy of the Financial Crisis

Pär Österholm ()
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Pär Österholm: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden

Abstract: This paper investigates the effects of the financial crisis on the Swedish real economy. In order to do this, an index which describes the financial conditions of the Swedish economy is developed. The index indicates that domestic Swedish financial conditions have deteriorated substan-tially during 2008 and are now at the highest level since the crisis of the early 1990’s. A Bayesian VAR model with both US and Swedish variables is used to assess the quantitative effects of the financial crisis on Swedish real GDP growth. Results suggest that the Swedish economy will grow substantially slower in the next couple of years due to the financial crisis.

Keywords: GDP growth; Bayesian VAR

JEL-codes: E37; E44

30 pages, February 28, 2009

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