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A Simultaneous Model of the Swedish Krona, the US Dollar and the Euro

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Author Info
Lindblad, Hans () (Sveriges Riksdag)
Sellin, Peter () (Monetary Policy Department, Central Bank of Sweden)
Abstract

In this paper we simultaneously estimate the real exchange rates between the Swedish Krona, the US Dollar and the Euro. A prime candidate for explaining the exchange rate movements is relative potential output. Since this variable is unobservable, cyclical and potential output are estimated in an unobserved components framework together with a Phillips curve. Our empirical exchange rate results are in line with theory. Increases in relative potential output and the terms of trade strengthen the exchange rate, while a relative increase of the fraction of middle-aged people in the population and budget deficits depreciate the exchange rate. The estimates suggest that the recent deterioration of the relative budget situation for the US versus Europe is a prime candidate for explaining the USD/EUR exchange rate change lately.

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Publisher Info
Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 193.

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Length: 37 pages
Date of creation: 01 May 2006
Date of revision:
Handle: RePEc:hhs:rbnkwp:0193

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
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Related research
Keywords: Equilibrium real exchange rate; expectations augmented Phillips curve; unobserved-components model;

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
F31 - International Economics - - International Finance - - - Foreign Exchange
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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