Effects of US policy uncertainty on Swedish GDP growth

In this paper, we study the effects of US policy uncertainty-measured as the policy uncertainty index of Baker et al. (Measuring economic policy uncertainty, 2013)-on Swedish GDP growth. Another source of spillovers of shocks to small open economies is thereby examined. We apply both Bayesian VAR models and spectral analysis to quarterly data from 1988 to 2013. Results show that increasing US policy uncertainty has significant negative effects on Swedish GDP growth. The effect seems to primarily stem from effects on investment growth and export growth. Our findings should prove useful to those who analyse and forecast the Swedish economy and potentially also other similar small open economies.