, Isaiah Hull
() and Hanna Stenbacka Köhler
Hanna Armelius: Ministry of Finance
Isaiah Hull: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Hanna Stenbacka Köhler: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: Foreign measures of uncertainty, such as the US EPU index, are often used as a proxies for domestic uncertainty in small open economies. We construct an EPU index for Sweden and demonstrate that shocks to the domestic index yield di erent impulse response functions for GDP growth than shocks to the US index. In particular, a one standard deviation shock to the Swedish index delivers its maximum impact in the same quarter, lowering GDP growth by 0.2 percentage points. In contrast, a shock to the US index delivers its maximum impact with a one-quarter delay. Other foreign proxies, such as the EU and German indices, also generate e ects that peak with a one-quarter delay.
19 pages, December 1, 2016
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