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Interest Rates in the Nordic Countries: Evidence Based on Devaluation Expectations

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  • Holden, Steinar
  • Vikoren, Birger

Abstract

Over the period 1979-92, investments in Danish and Norwegian kroner in the Euromarket have had an annual excess return of about 2 and 1.1 percent, compared to investments in the Euromarket in foreign currencies. Assuming risk neutrality, the subjective probability of a devaluation within the next month is derived from the excess returns on the Euromarket. These derived probabilities are found to be inconsistent with the actual number of devaluations that have taken place over this period, so that the probability of devaluation has been significantly overrated for Denmark and Norway. Copyright 1994 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Holden, Steinar & Vikoren, Birger, 1994. " Interest Rates in the Nordic Countries: Evidence Based on Devaluation Expectations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 15-30.
  • Handle: RePEc:bla:scandj:v:96:y:1994:i:1:p:15-30
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    Cited by:

    1. Holden, Steinar & Kolsrud, Dag, 1999. "Noisy signals in target zone regimes:: Theory and Monte Carlo experiments," European Economic Review, Elsevier, vol. 43(8), pages 1531-1567, August.
    2. Hilde Christiane Bjørnland & Håvard Hungnes, 2002. "Fundamental determinants of the long run real exchange rate: The case of Norway," Discussion Papers 326, Statistics Norway, Research Department.
    3. Asbjørn Rødseth, 1995. "Limits to Macroeconomic Intervention," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 22, pages 41-48.
    4. Hilde C Bjørnland & Håvard Hungnes, 2008. "The Commodity Currency Puzzle," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(2), pages 7-30, May.

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