During my DG ECFIN traineeship I worked on macroeconomic imbalances in Sweden and the United Kingdom. Responsibilities included developing econometric models, updating quantitative methodology and providing statistical and analytical support to the principal country-surveillance publications. The 2015 Sweden Country Report presents results from this work. Its section on shock transmission uses “a model developed by the European Commission” to estimate the effects of housing-price declines and interest-rate increases. I contributed to this methodological work by developing econometric models for the analytical area. The published Swedish estimates show that a 10% decline in house prices could reduce GDP by 1.4%, private consumption by 2.0% and residential investment by 27.1%. I also provided analytical support to the 2015 United Kingdom Country Report.
Sweden
My work focused on household indebtedness, housing prices, low interest rates and their potential macroeconomic effects. The 2015 Sweden Country Report uses a Commission econometric model to quantify how shocks could transmit to GDP, private consumption, residential investment and house prices.
Housing-price shock
For a 10% decline in house prices, the published Commission estimates for Sweden show a maximum effect of approximately -1.4% on GDP, -2.0% on private consumption and -27.1% on residential investment. The report compares the Swedish results with other Nordic economies and an external IMF benchmark.
Interest-rate shock
For a one-percentage-point increase in interest rates, the report gives effects of roughly -0.8% on private consumption, -4.1% on residential investment and -2.6% on house prices. An accompanying simulation indicates a GDP effect of around -0.9%.
United Kingdom
I worked on macroeconomic imbalances for both Sweden and the United Kingdom and provided statistical and analytical support to the main publications for both countries. For the UK Country Report I provided statistical and analytical support, while my work on the Swedish analysis can be linked more specifically to the development of an econometric model.