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Exchange Rate Regimes and Macroeconomic Stability: The Case of Sweden 1972-1996

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  • Bergvall, Anders

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    (Department of Economics)

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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 regimes in Sweden during the period 1972 -1996. 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 indicate that the central bank can stabilize much of the macroeconomic disturbances under a floating exchange rate, but still the volatility of the macroeconomic variables under the hypothetical floating exchange rate regime is about the same as under the actual quasi-fixed regime.

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    Bibliographic Info

    Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2000:25.

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    Length: 25 pages
    Date of creation: 15 Dec 2000
    Date of revision:
    Publication status: Published in Oxford Economic papers-New series 57, 2005, pages 422-446.
    Handle: RePEc:hhs:uunewp:2000_025

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    Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
    Phone: + 46 18 471 25 00
    Fax: + 46 18 471 14 78
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    Web page: http://www.nek.uu.se/
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    Related research

    Keywords: Exchange rate regimes; macroeconomic stability; monetary policy;

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    References

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    1. Gottfries, Nils, 1999. "Markets Shares, Financial Constraints, and Pricing Behavior in the Export Market," Working Paper Series 1999:15, Uppsala University, Department of Economics.
    2. 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.
    3. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476.
    4. Bergbom, L., 1998. "Exchange Rate Variability Inside and Outside the EMU," Papers 1998:26, Uppsala - Working Paper Series.
    5. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
    6. Olivier Jean Blanchard & Lawrence Katz, 1999. "Wage Dynamics: Reconciling Theory and Evidence," NBER Working Papers 6924, National Bureau of Economic Research, Inc.
    7. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    8. Edin, P.A. & Vredin, A., 1991. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Papers 1991g, Uppsala - Working Paper Series.
    9. Bergbom, Lennart, 1998. "Exchange Rate Variability Inside and Outside the EMU," Working Paper Series 1998:26, Uppsala University, Department of Economics.
    10. Alexius, Annika, 1999. "Sources of Real Exchange Rate Fluctuations in the Nordic Countries," Working Paper Series 90, Sveriges Riksbank (Central Bank of Sweden).
    11. William Poole, 1999. "Monetary policy rules?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 3-12.
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    Cited by:
    1. Paul Soderlind, 2004. "What if the Fed had been an inflation nutter?," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1471-1473.
    2. Annika Alexius & Erik Post, 2008. "Exchange rates and asymmetric shocks in small open economies," Empirical Economics, Springer, vol. 35(3), pages 527-541, November.

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