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Sources of Real Exchange Rate Fluctuations in the Nordic Countries

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  • Alexius, Annika

    (Monetary Policy Department, Central Bank of Sweden)

Abstract

In an attempt to move beyond the purchasing power parity hypothesis, this paper studies two issues. First, the causes of movements of real exchange rates are investigated. In contrast to the typical result, supply shocks are found to dominate the long-run variance decompositions for all countries. This suggests that productivity developments are the most important determinant of long-run movements in real exchange rate. A second topic is the relative importance of stationary and non-stationary components of real exchange rates. Also in contrast to previous findings, transitory shocks are more important than permanent shocks for three of the four countries.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 90.

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Length: 22 pages
Date of creation: 01 Sep 1999
Date of revision:
Publication status: Published in Scandinavian Journal of Economics, 2001, pages 317-331.
Handle: RePEc:hhs:rbnkwp:0090

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
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Related research

Keywords: Real exchange rate; Purchasing power parity; Nordic countries;

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Cited by:
  1. Hilde C. Bjørnland & Håvard Hungnes, 2005. "The commodity currency puzzle," Discussion Papers 423, Research Department of Statistics Norway.
  2. Anna Larsson, 2004. "The Swedish real exchange rate under different currency regimes," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 140(4), pages 706-727, December.
  3. Alexius, Annika, 2000. "Supply Shocks and Real Exchange Rates," Working Paper Series 117, Sveriges Riksbank (Central Bank of Sweden).
  4. John R. Baldwin & Beiling Yan, 2007. "Exchange Rate Cycles and Canada/US Manufacturing Prices," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(3), pages 508-533, October.
  5. Baldwin, John R. & Yan, Beiling, 2006. "Les mouvements cycliques du taux de change et les prix dans les secteurs canadien et americain de la fabrication," Serie de documents de recherche sur l'analyse economique (AE) 2006041f, Statistics Canada, Direction des etudes analytiques.
  6. Bergvall, Anders, 2000. "Exchange Rate Regimes and Macroeconomic Stability: The Case of Sweden 1972-1996," Working Paper Series 2000:25, Uppsala University, Department of Economics.
  7. Alexius, Annika, 2001. "How to Beat the Random Walk," Working Paper Series 175, Trade Union Institute for Economic Research.
  8. Lindblad, Hans & Sellin, Peter, 2003. "The Equilibrium Rate of Unemployment and the Real Exchange Rate: An Unobserved Components System Approach," Working Paper Series 152, Sveriges Riksbank (Central Bank of Sweden).
  9. Alexius, Annika & Carlsson, Mikael, 2002. "Measures of Technology and the Business Cycle," Working Paper Series 2002:10, Uppsala University, Department of Economics, revised 02 Mar 2006.
  10. Lindblad, Hans & Sellin, Peter, 2006. "A Simultaneous Model of the Swedish Krona, the US Dollar and the Euro," Working Paper Series 193, Sveriges Riksbank (Central Bank of Sweden).
  11. Jaanus Raim, 2004. "The Alternative to the Existing System of the Concepts about Purchasing Power Parity Deviations . Derived from the Estonian Experience," Working Papers 115, Tallinn School of Economics and Business Administration, Tallinn University of Technology.

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