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Fundamental determinants of the long run real exchange rate: The case of Norway

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Author Info
Bjørnland, Hilde C. (Dept. of Economics, University of Oslo)
Hungnes, Håvard () (Statistics Norway, Research Department)

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Abstract

Modelling the Norwegian exchange rate against a basket of currencies, we find a robust long-term link between the real exchange rate and real interest differential that is consistent with purchasing power parity (PPP) and uncovered interest parity (UIP). However, PPP alone is rejected. These findings are confirmed focusing on the Norwegian bilateral exchange rate with Germany and (possibly) Sweden, but rejected against the UK and the US. We argue that rejection of bilateral relationships may result from idiosyncratic shocks in the different countries that may be negligible when modelling against a basket of currencies.

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File URL: http://www.oekonomi.uio.no/memo/memopdf/memo2302.pdf
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Publisher Info
Paper provided by Oslo University, Department of Economics in its series Memorandum with number 23/2002.

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Length: 38 pages
Date of creation: 18 Jun 2003
Date of revision:
Handle: RePEc:hhs:osloec:2002_023

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Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
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Web page: http://www.oekonomi.uio.no/indexe.html
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Related research
Keywords: Purchasing power parity; uncovered interest parity; cointegration VAR;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
F31 - International Economics - - International Finance - - - Foreign Exchange

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hilde Bjørnland, 2004. "The Role of the Exchange Rate as a Shock Absorber in a Small Open Economy," Open Economies Review, Springer, vol. 15(1), pages 23-43, January. [Downloadable!] (restricted)
  2. Hilde C. Bjørnland and Håvard Hungnes, 2005. "The commodity currency puzzle," Discussion Papers 423, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
  3. Hilde C. Bjørnland and Håvard Hungnes, 2003. "The importance of interest rates for forecasting the exchange rate," Discussion Papers 340, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
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