Import prices and nominal exchange rates in Sweden
The relationship between the nominal exchange rate and import prices is central to the determination of inflation in a small open economy like Sweden. Since the pass-through of exchange rate changes to import prices appears to be affected by the size of the country, it may be expected to be higher in Sweden than what has been documented for major nations. Using the Johansen (1988) approach to cointegration, the long-run pass-through of exchange rate changes to import prices on manufactured goods is estimated to be 0.6-0.8. This is slightly higher than what is typically found for small countries. A second result is that import prices are affected by Swedish macroeconomic conditions, which violates the small open economy assumption. Finally, neither the law of one price nor the small open economy assumption is rejected in the case of Swedish oil imports.
Volume (Year): 10 (1997)
Issue (Month): 2 (Autumn)
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