An alternative estimate from the Federal Reserve Bank of New York’s DSGE model, which explicitly includes a financial sector, suggests the tightening in financial conditions since mid-2015 is equivalent to an increase in the federal funds rate of roughly 100 basis points. 11  Imports and exports each account for a little under one-half of Sweden’s GDP.
Were these the signs of the inevitable “bumps in the road” that occur during a period of transition from rapid growth to a more sustainable pace of expansion, or were they the early warning signs of a more serious slackening in demand? The FOMC wrestled with this issue at its December meeting.