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Driving forces of the Swiss output gap

Swiss Journal of Economics and Statistics volume 149, pages 493–531 (2013)Cite this article

Summary

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.

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Authors and Affiliations

  1. State Secretariat of Economic Affairs (SECO), Holzikofenweg 36, CH-3003, Bern, Switzerland

    Stefan Leist

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  1. Stefan Leist
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Correspondence to Stefan Leist.

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The views and opinions expressed in this paper are solely those of the author and are not necessarily those of the State Secretariat for Economic Affairs. The paper was written while the author was at the University of Bern, Switzerland. I thank Gregor Bäurle, Fabrice Collard, Harris Dellas, Behzad Diba, Sarah Lein, Klaus Neusser, Heiner Mikosch, anonymous referees as well as participants at the Young Swiss Economists Meeting 2012 and the SSES Annual Meeting 2012 for valuable comments. All remaining errors are mine.

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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( https://creativecommons.org/licenses/by/2.0 ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Leist, S. Driving forces of the Swiss output gap. Swiss J Economics Statistics 149, 493–531 (2013). https://doi.org/10.1007/BF03399399

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JEL-Classification

  • C11
  • C51
  • E32
  • F41

Keywords

  • DSGE models
  • output gap
  • natural level of output
  • small open economy
  • business cycle
  • recessions