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Have Swedish Postwar Business Cycles Been Generated Abroad or at Home?

Listed author(s):
  • Lindé, Jesper


    (Dept. of Economics, Stockholm School of Economics)

This paper investigates the relative importance of foreign and domestic shocks for the Swedish postwar business cycle in a neoclassical stochastic growth model of a small open economy. We extend previous work in the literature by allowing for stochastic fiscal policy, since recent research has shown that fiscal policy shocks may be important for business cycles. It is found that the introduction of fiscal policy improves the empirical fit of the model, but not significantly so. Foreign and domestic shocks are shown to be approximately equally important for fluctuations in output, while foreign shocks are farmost important for fluctuations in the real exchange rate and the current account. Among the domestic shocks, innovations in fiscal policy are found to be of relatively low importance for business cycles.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 282.

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Length: 36 pages
Date of creation: 19 Nov 1998
Handle: RePEc:hhs:hastef:0282
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