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Exchange rate regimes and macroeconomic stability: the case of Sweden

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  • Anders Bergvall
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    Abstract

    In this paper I investigate the relevance of the exchange rate regime for macroeconomic stability. I simulate hypothetical macroeconomic developments under different hypothetical regimes in Sweden during the period 1974--1994. The main question is how stable output would have been if Sweden had had a floating exchange rate regime. Would it have been better with a floating exchange rate than the actual quasi-fixed regime? Also the development with an irrevocably fixed exchange rate is investigated. The results show that the choice of exchange rate regime does influence macroeconomic stability. More precisely, output volatility under the actual exchange rate regime is about the same as under the hypothetical floating exchange rate regime, but output is substantially more volatile under the hypothetical fixed exchange rate regimes. Copyright 2005, Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Oxford Economic Papers.

    Volume (Year): 57 (2005)
    Issue (Month): 3 (July)
    Pages: 422-446

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    Handle: RePEc:oup:oxecpp:v:57:y:2005:i:3:p:422-446

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    1. Robert P. Flood & Andrew K. Rose, 1993. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," NBER Working Papers 4503, National Bureau of Economic Research, Inc.
    2. Clarida, Richard & GalĂ­, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
    3. Svensson, Lars E.O., 1997. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Seminar Papers 615, Stockholm University, Institute for International Economic Studies.
    4. Edin, Per-Anders & Vredin, Anders, 1993. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Economic Journal, Royal Economic Society, vol. 103(416), pages 161-75, January.
    5. McCallum, Bennett T & Nelson, Edward, 1999. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 296-316, August.
    6. Gottfries, Nils, 1999. "Markets Shares, Financial Constraints, and Pricing Behavior in the Export Market," Working Paper Series 1999:15, Uppsala University, Department of Economics.
    7. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
    8. Ohlsson, Henry & Vredin, Anders, 1994. "Political Cycles and Cyclical Policies. A New Test Approach Using Fiscal Forecasts," Working Paper Series in Economics and Finance 9, Stockholm School of Economics.
    9. Paul Soderlind, 2004. "What if the Fed had been an inflation nutter?," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1471-1473.
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    Cited by:
    1. Uluc Aysun, 2006. "Testing for Balance Sheet Effects in Emerging Market Countries," Working papers 2006-28, University of Connecticut, Department of Economics.
    2. Frank Bohn, 2006. "Greed, Impatience and Exchange Rate Determination," Working Papers 200605, School Of Economics, University College Dublin.
    3. Aysun, Uluc, 2008. "Automatic stabilizer feature of fixed exchange rate regimes," Emerging Markets Review, Elsevier, vol. 9(4), pages 302-328, December.
    4. Uluc Aysun, 2006. "Automatic Stabilizer Feature of Fixed Exchange Rate Regimes in Emerging Markets," Working papers 2006-27, University of Connecticut, Department of Economics, revised Aug 2008.

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