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What Determines Real Exchange Rates? The Nordic Countries

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  • Bergvall, Anders

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    (Department of Economics)

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    Abstract

    This paper presents a model yielding testable implications concerning the long-run co-movements of real exchange rates, relative productivity, the trade balance and terms of trade. Countries with higher productivity, trade deficits or improved terms of trade are found to have more appreciated real exchange rates, with the main channel of transmission working through the relative price of nontraded goods. Exogenous terms of trade shocks are found to be the most important determinant of long run movements in the real exchange rate for Denmark and Norway, while demand shocks account for most of the long run variance in the real exchange rate for Finland and Sweden.

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    Bibliographic Info

    Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2002:15.

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    Length: 33 pages
    Date of creation: 18 Aug 2002
    Date of revision:
    Publication status: Published in Scandinavian Journal of Economics, 2004, pages 315-337.
    Handle: RePEc:hhs:uunewp:2002_015

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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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    Keywords: Real exchange rates; cointegration; variance decomposition;

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    References

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    1. Steven M. Sheffrin & Paul Bergin, 2003. "Interest Rates, Exchange Rates And Present Value Models Of The Current Account," Working Papers 9722, University of California, Davis, Department of Economics.
    2. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Sellin, Peter, 2007. "Using a New Open Economy Macroeconomics model to make real nominal exchange rate forecasts," Working Paper Series 213, Sveriges Riksbank (Central Bank of Sweden).

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