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Driving forces of the Swiss output gap


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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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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Leist, S. Driving forces of the Swiss output gap. Swiss J Economics Statistics 149, 493–531 (2013).

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