The Timing of Uncertainty Shocks in a Small Open Economy

Economics Letters, Vol. 155(C), 2015

Sveriges Riksbank Working Paper Series No. 334

12 Pages Posted: 7 Mar 2017 Last revised: 12 Dec 2020

See all articles by Hanna Armelius

Hanna Armelius

Sveriges Riksbank - Ministry of Finance (Sweden)

Isaiah Hull

Sveriges Riksbank - Research Division

Hanna Stenbacka Köhler

Sveriges Riksbank

Date Written: December 1, 2016

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 different 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 effects that peak with a one-quarter delay.

Keywords: Economic Uncertainty, Policy Uncertainty, Business Cycles, Small Open Economy

JEL Classification: D80, E66, F41, F42

Suggested Citation

Armelius, Hanna and Hull, Isaiah and Stenbacka Köhler, Hanna, The Timing of Uncertainty Shocks in a Small Open Economy (December 1, 2016). Economics Letters, Vol. 155(C), 2015, Sveriges Riksbank Working Paper Series No. 334, Available at SSRN: https://ssrn.com/abstract=2917280 or http://dx.doi.org/10.2139/ssrn.2917280

Hanna Armelius

Sveriges Riksbank - Ministry of Finance (Sweden) ( email )

Sweden

Isaiah Hull (Contact Author)

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Hanna Stenbacka Köhler

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

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