Industrial effects of U.S. monetary policy in Sweden : Evaluating the effects of higher U.S. interest rates on Swedish industries

Abstract: This study evaluates the effect of U.S monetary policy (Fed funds rate) on GDP for 11 Swedish industries classified by the NACE Rev.2 regulations made by the European Commission and Eurostat. I estimate 11 vector error correction models, one for each industry, to evaluate the industry-specific effect. Impulse response functions are then used to simulate a one standard deviation-sized positive shock in the Fed funds rate and the following responses in outputs (GDP) for the 11 industries. Firstly, I show that all industries, with significant equations in the VEC models, experience a decrease in output as a response to a monetary contraction in the U.S. However, due to methodological weaknesses, I am unable to estimate and compare the magnitudes of the industrial-specific effects.