IDEAS home Printed from
   My bibliography  Save this article

The current account, supply shocks and accommodative fiscal policy : interpretations of Swedish post-war data


  • Peter Englund

    (Uppsala University)

  • Anders Vredin

    (Trade Union Institution for Economic Research, Sweden)


The aim of the paper is to assess empirically the importance of different types of shocks in explaining the Swedish current account. We do this by first estimating an unrestricted vector autoregression system in these four variables: the real wage, the terms of trade, government consumption, and the current account. We then perform innovation accounting and impulse response studies based on a particular structural model with labour-union determined wages and government consumption taken to be accommodative in response to private sector labour demand. A principal finding is that the forecast error variance in the current account is to a very limited extent (less than 20 per cent over a couple of years) explained by innovations to the wage, terms-of-trade, or government-consumption equations. This is in contrast with the »conventional wisdom» and also with the results for some of the other variables. For example, innovations in the terms-of-trade equation explain more than half of the variance of the wage.

Suggested Citation

  • Peter Englund & Anders Vredin, 1990. "The current account, supply shocks and accommodative fiscal policy : interpretations of Swedish post-war data," Finnish Economic Papers, Finnish Economic Association, vol. 3(2), pages 89-107, Autumn.
  • Handle: RePEc:fep:journl:v:3:y:1990:i:2:p:89-107

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Maurice Obstfeld, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, Oxford University Press, vol. 97(2), pages 251-270.
    2. Calmfors, Lars & Horn, Henrik, 1986. "Employment Policies and Centralized Wage-Setting," Economica, London School of Economics and Political Science, vol. 53(211), pages 281-302, August.
    3. Richard H. Clarida, 1985. "The Balance of Payments Adjustment Mechanism in a Rational Expectations Equilibrium," Cowles Foundation Discussion Papers 769, Cowles Foundation for Research in Economics, Yale University.
    4. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    5. Richard H. Clarida, 1985. "International Lending and Borrowing in a Stochastic Sequence Equilibrium," Cowles Foundation Discussion Papers 771, Cowles Foundation for Research in Economics, Yale University.
    6. Olivier J. Blanchard & Mark W. Watson, 1986. "Are Business Cycles All Alike?," NBER Chapters,in: The American Business Cycle: Continuity and Change, pages 123-180 National Bureau of Economic Research, Inc.
    7. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
    8. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
    9. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    10. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    11. Lars E. O. Svensson, 1984. "Oil Prices, Welfare, and the Trade Balance," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 649-672.
    12. Persson, Torsten & Svensson, Lars E O, 1985. "Current Account Dynamics and the Terms of Trade: Harberger-Laursen-Metzler Two Generations Later," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 43-65, February.
    13. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    14. Lundberg, Erik, 1985. "The Rise and Fall of the Swedish Model," Journal of Economic Literature, American Economic Association, vol. 23(1), pages 1-36, March.
    15. Sachs, Jeffrey, 1982. " The Current Account in the Macroeconomic Adjustment Process," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 147-159.
    16. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fep:journl:v:3:y:1990:i:2:p:89-107. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Editorial Secretary). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.