Advanced Search

Papers Articles Authors Institutions Data (FRED®)

Abstract

Norway adopted a flexible inflation target in March 2001 following a long period with exchange rate targeting in various forms. The regime shift reverses the causal ordering between changes in the nominal exchange rate and changes in the interest rate. When the central bank targets the exchange rate, interest rates are rarely changed independently of foreign interest rates and only to counteract large movements in the exchange rate after interventions have failed to stabilise the exchange rate. With inflation targeting the interest rate is used to stabilise the domestic economy and has a strong impact on the exchange rate. The long run (steady state) relationship between the interest rate and the exchange rate is on the other hand not altered by the change in monetary policy regime. This means that the fundamental equilibrating mechanism - that is the PPP condition augmented with a risk premium - remains the same across regimes.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ssb.no/publikasjoner/DP/pdf/dp501.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 501.

as HTML HTML with abstract plain text plain text with abstract BibTeX RIS (EndNote, RefMan, ProCite) ReDIF in new window

Length:
Date of creation: May 2007
Date of revision:
Handle: RePEc:ssb:dispap:501

Contact details of provider:
Postal: P.O.Box 8131 Dep, N-0033 Oslo, Norway
Phone: (+47) 21 09 00 00
Fax: (+47) 21 09 49 73
Email:
Web page: http://www.ssb.no/en/
More information through EDIRC

Related research

Keywords: monetary policy regime shift; NOK/euro exchange rate; role of interest rates; equilibrium real exchange rate; purchasing power parity; uncovered interest parity;

Find related papers by JEL classification:

• C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
• C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
• C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
• E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
• F31 - International Economics - - International Finance - - - Foreign Exchange

This paper has been announced in the following NEP Reports:

• NEP-ALL-2007-05-19 (All new papers)
• NEP-CBA-2007-05-19 (Central Banking)
• NEP-EEC-2007-05-19 (European Economics)
• NEP-MAC-2007-05-19 (Macroeconomics)
• NEP-MON-2007-05-19 (Monetary Economics)

References

References listed on IDEAS
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.:

as HTML HTML with abstract plain text plain text with abstract BibTeX RIS (EndNote, RefMan, ProCite) ReDIF in new window

1. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
2. Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," NBER Working Papers 12163, National Bureau of Economic Research, Inc.
   
   • Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," Working Papers Central Bank of Chile 409, Central Bank of Chile.
3. Bardsen, Gunnar & Eitrheim, Oyvind & Jansen, Eilev S. & Nymoen, Ragnar, 2005. "The Econometrics of Macroeconomic Modelling," OUP Catalogue, Oxford University Press, number 9780199246502, September.
4. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
5. Akram, Q. Farooq, 2006. "PPP in the medium run: The case of Norway," Journal of Macroeconomics, Elsevier, vol. 28(4), pages 700-719, December.
6. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
7. Taylor, Alan & Taylor, Mark, 2004. "The Purchasing Power Parity Debate," Working Papers 04-6, University of California at Davis, Department of Economics.
   
   • Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall.
   • Taylor, Alan M & Taylor, Mark P, 2004. "The Purchasing Power Parity Debate," CEPR Discussion Papers 4495, C.E.P.R. Discussion Papers.
   • Alan Taylor & Mark Taylor, 2004. "The Purchasing Power Parity Debate," Working Papers 46, University of California, Davis, Department of Economics.
   • Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," NBER Working Papers 10607, National Bureau of Economic Research, Inc.
8. Maurice Obstfeld & Kenneth Rogoff, 1995. "The mirage of fixed exchange rates," Working Papers in Applied Economic Theory 95-08, Federal Reserve Bank of San Francisco.
   
   • Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
   • Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
9. Lucio Sarno, 2005. "Viewpoint: Towards a solution to the puzzles in exchange rate economics: where do we stand?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 673-708, August.
10. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    
    • Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
    • Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
    • Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
    • Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
11. Froot, Kenneth A & Thaler, Richard H, 1990. "Foreign Exchange," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 179-92, Summer.
12. Håvard Hungnes & Hilde C. Bj�rnland, 2006. "The importance of interest rates for forecasting the exchange rate," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(3), pages 209-221.
    
    • 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.
13. Q. Farooq Akram, 2004. "Oil prices and exchange rates: Norwegian evidence," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 476-504, December.
14. Harbo, Ingrid, et al, 1998. "Asymptotic Inference on Cointegrating Rank in Partial Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 388-99, October.
15. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
    
    • Kenneth A. Froot & Kenneth Rogoff, 1996. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
16. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
17. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
18. Christopher Allsopp & Amit Kara & Edward Nelson, 2006. "U.K. inflation targeting and the exchange rate," Working Papers 2006-030, Federal Reserve Bank of St. Louis.

Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:501

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (J Bruusgaard).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

---

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.

Privacy Legal