Evaluating a Simulated SWF's Impact on Sweden's Economy

[Joakim Eriksson]

Dear STATA Forum Members,

We are master's students in finance conducting a thesis that involves simulating a Sovereign Wealth Fund (SWF) for Sweden, spanning from 1988 to 2022. Our simulation integrates the hypothetical SWF's value into Sweden's public sector balance sheet, creating a simulated balance sheet consisting of the actual balance sheet value + the simulated SWF value.

Our objective is to perform an econometric analysis comparing these balance sheets to assess the SWF's potential impact. Although we initially considered a Difference-in-Differences approach, our supervisor suggests a panel data analysis might yield more insightful and robust findings. However, we face challenges in structuring the panel data model due to a lack of similar studies for guidance.

We seek your expertise to help us design an appropriate panel data model for our analysis. Specifically, we are uncertain about the selection of dependent and independent variables that would best capture the SWF's impact on Sweden's economy. Any advice on model specification or literature references would be immensely appreciated.

Thank you for your time and assistance.




Here is the result from our simulation:

[George Ford]

What you are trying to do here is unclear.

Are you looking at Y = f(SWF) versus Y = f(SWFsim)?

What is Y?

Is the simulation an attempt to assess measurement error in SWF?

Presumably, Y is dependent on SWF (if at all), not some simulation of it (absent measurement error, in which case IV may be better).

[Joakim Eriksson]

Our objective is to quantify the impact of a hypothetical Sovereign Wealth Fund (SWF) on Sweden's balance sheet, designating the balance sheet as our dependent variable and the SWF as an independent variable.
We are deliberating on additional independent and control variables to enhance our model's accuracy, with our supervisor recommending GDP growth and net exports.
Given our and your uncertainty, we question whether panel data analysis is the most suitable method or if an alternative approach could offer a more precise evaluation of the SWF's economic influence.

Hope this made it more clearer
What do you think?

[Joakim Eriksson]

We have a first draft of our panel model (see picture). Here are the variables we are considering.

Dependent Variable:
GovernmentBalanceSheet_{t} represents the government balance sheet at time t.


Independent Variables:

SWFvalue_{t}: The value of the Sovereign Wealth Fund, reflecting its potential to influence the government's financial position.
GDPGrowthRate_{t}: An indicator of the economic environment that could affect government revenues and expenditures.
BudgetDeficit_{t}: The fiscal balance, indicating how government expenditures exceed revenues.
ForeignDebtToGDP_{t}: The ratio of foreign debt to GDP, offering insights into the sustainability of the government's external debt.
FXReservesToGDP_{t}: The ratio of foreign exchange reserves to GDP, highlighting the government's buffer against external shocks.


Our objective is to quantify the impact of a hypothetical Sovereign Wealth Fund (SWF) on Sweden's balance sheet.
Does this look reasonable? Do you think we should drop or include any other variable of interest or are we way off in our thinking?

[George Ford]

A Balance Sheet is, well, a sheet. What is the Balance Sheet measuring?

So you want to establish the relationship between SWF and GBS so that you can then calculate the margin at some alternate values of SWF?