Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 135: Effects of US Policy Uncertainty on Swedish GDP Growth

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

Abstract: In this paper, we study the effects of US policy uncertainty – measured as the policy uncertainty index of Baker et al. (2013) – on Swedish GDP growth. Another source of spillovers of shocks to small open economies is thereby examined. We apply both Bayesian VAR models and spectral analysis to quarterly data from 1988 to 2013. Results show that increasing US policy uncertainty has significant negative effects on Swedish GDP growth. The effect seems to primarily stem from effects on investment growth and export growth. Our findings could prove useful to those who analyse and forecast the Swedish economy and potentially also other similar small open economies.

Keywords: Spillovers; Small open economy; Political uncertainty index; Bayesian VAR; Spectral analysis

JEL-codes: C32; F43

40 pages, October 17, 2014

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