Driving Forces of the Swiss Output Gap

Stefan Leist ()

Swiss Journal of Economics and Statistics (SJES), 2013, vol. 149, issue IV, 493-531

Abstract: What drives the output gap? Contrary to standard agnostic statistical approaches, New Keynesian small open economy models allow decomposing the output gap into its shocks and confirm the conventional wisdom that most of the variation is due to foreign shocks. However, the risk premium shock also plays an important role. It has a procyclical effect on the output gap except for the most recent recession, where the economic agents demanded a higher risk premium probably due to the large Swiss financial sector. This helped to dampen the recession because of the depreciation of the domestic currency due to this shock.

Keywords: DSGE models; output gap; small open economy; business cycle (search for similar items in EconPapers)
JEL-codes: C11 C51 E32 F41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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