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Interest Rates in the Nordic Countries: Evidence Based on Devaluation Expectations

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  • Holden, Steinar
  • Vikoren, Birger

Abstract

Over the period 1979-92, investments in Danish and Norwegian kroner in the Euromarket have had an annual excess return of about 2 and 1.1 percent, compared to investments in the Euromarket in foreign currencies. Assuming risk neutrality, the subjective probability of a devaluation within the next month is derived from the excess returns on the Euromarket. These derived probabilities are found to be inconsistent with the actual number of devaluations that have taken place over this period, so that the probability of devaluation has been significantly overrated for Denmark and Norway. Copyright 1994 by The editors of the Scandinavian Journal of Economics.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 96 (1994)
Issue (Month): 1 ()
Pages: 15-30

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Handle: RePEc:bla:scandj:v:96:y:1994:i:1:p:15-30

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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Web: http://www.blackwellpublishing.com/subs.asp?ref=0347-0520

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Cited by:
  1. Bjørnland, Hilde C. & Hungnes, Håvard, 2003. "Fundamental determinants of the long run real exchange rate: The case of Norway," Memorandum 23/2002, Oslo University, Department of Economics.
  2. Bjørnland, Hilde C. & Hungnes, Håvard, 2005. "The commodity currency puzzle," Memorandum 32/2005, Oslo University, Department of Economics.
  3. Steinar Holden & Dag Kolsrud & Birger Vikøren, 1995. "Noisy signals in target zone regimes Theory and Monte Carlo experiments," Discussion Papers 160, Research Department of Statistics Norway.
  4. Asbjørn Rødseth, 1995. "Limits to Macroeconomic Intervention," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 22, pages 41-48.

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