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Modelling the Foreign Sector in a Macroeconometric Model of Sweden

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Author Info
Alsterlind, Jan () (National Institute of Economic Research)
Markowski, Alek () (National Institute of Economic Research)
Nilsson, Kristian () (National Institute of Economic Research)
Abstract

The purpose of this paper is to estimate a rudimentary model of the “rest of the world", which may serve as the foreign sector in a model of the Swedish economy. The “rest of the world" is here represented by the US and the euro zone which together cover some two thirds of the Swedish foreign trade. The underlying theoretical model is the so-called Svensson model as of Svensson (1997). This model has the advantage that it is small and simple, but still allows for both supply and demand shocks with realistic responses. The Svensson model is estimated (OLS) for the US and the euro zone separately using quarterly data. Furthermore, following Smeets and Peersman (1999), alternative models with the outputgap treated as an unobserved component are estimated as well. Impulse response analyses indicate that all individual models react reasonably well to both supply and demand shocks. The models for the US and the euro zone are aggregated temporally to annual data (since the model of the Swedish economy uses annual data) and are subsequently aggregated into one model of the foreign sector.

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Paper provided by National Institute of Economic Research in its series Working Paper with number 88.

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Length: 31 pages
Date of creation: 01 Jan 2004
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Handle: RePEc:hhs:nierwp:0088

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  1. Sevensson, L.E.O., 1999. "Price Stability as a Target for Monetary Policy: Defining and Maintaining Price Stability," Papers 673, Stockholm - International Economic Studies.
    Other versions:
  2. Rudebusch, Glenn D. & Svensson, Lars E. O., 1999. "Eurosystem Monetary Targeting: Lessons from U.S. Data," Working Paper Series 92, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  3. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
  4. Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
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  5. Ruist, Erik, 1996. "Temporal Aggregation of an Econometric Equation," Working Paper 52, National Institute of Economic Research. [Downloadable!]
  6. Fagan, Gabriel & Henry, Jerome & Mestre, Ricardo, 2005. "An area-wide model for the euro area," Economic Modelling, Elsevier, vol. 22(1), pages 39-59, January. [Downloadable!] (restricted)
  7. Favero, Carlo A. & Scott, Alasdair, 2003. "Applied Macroeconometrics," Macroeconomic Dynamics, Cambridge University Press, vol. 7(02), pages 313-315, April. [Downloadable!]
  8. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June. [Downloadable!] (restricted)
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  9. Mikael Apel & Per Jansson, 1999. "System estimates of potential output and the NAIRU," Empirical Economics, Springer, vol. 24(3), pages 373-388. [Downloadable!] (restricted)
  10. Peersman, Gert & Smets, Frank, 1999. "The Taylor Rule: A Useful Monetary Policy Benchmark for the Euro Area?," International Finance, Blackwell Publishing, vol. 2(1), pages 85-116, April. [Downloadable!] (restricted)
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