Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 134: The Euro Crisis and Swedish GDP Growth — A Study of Spillovers

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

Abstract: In this paper, a Bayesian VAR model is used to study the effects of euro area shocks on GDP growth in the small open economy of Sweden. A novel feature is that the new policy uncertainty index of Baker et al.(2013) is introduced in the model. The model behaves well in terms of reasonable impulse response functions. The specific effects of the euro crisis are investigated through a historical decomposition which shows that shocks to euro area GDP growth have been a reasonably important factor for Swedish GDP growth, supporting it during 2010 and holding it back thereafter. Generally, shocks to policy uncertainty have held back Swedish GDP growth during the euro crises.

Keywords: Small open economy; Bayesian VAR; Policy uncertainty index

JEL-codes: C32; F43

15 pages, March 25, 2014

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