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Exchange rate regimes and macroeconomic stability: the case of Sweden

  • Anders Bergvall
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    In this paper I investigate the relevance of the exchange rate regime for macroeconomic stability. I simulate hypothetical macroeconomic developments under different hypothetical regimes in Sweden during the period 1974--1994. 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 show that the choice of exchange rate regime does influence macroeconomic stability. More precisely, output volatility under the actual exchange rate regime is about the same as under the hypothetical floating exchange rate regime, but output is substantially more volatile under the hypothetical fixed exchange rate regimes. Copyright 2005, Oxford University Press.

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    File URL: http://hdl.handle.net/10.1093/oep/gpi016
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    Article provided by Oxford University Press in its journal Oxford Economic Papers.

    Volume (Year): 57 (2005)
    Issue (Month): 3 (July)
    Pages: 422-446

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    Handle: RePEc:oup:oxecpp:v:57:y:2005:i:3:p:422-446
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    1. 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.
    2. Lars E. O. Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," NBER Working Papers 5797, National Bureau of Economic Research, Inc.
    3. Ohlsson, Henry & Vredin, Anders, 1994. "Political Cycles and Cyclical Policies. A New Test Approach Using Fiscal Forecasts," SSE/EFI Working Paper Series in Economics and Finance 9, Stockholm School of Economics.
    4. Bennett T. McCallum & Edward Nelson, . "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," GSIA Working Papers 1997-71, Carnegie Mellon University, Tepper School of Business.
    5. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," Working Papers 97-32, C.V. Starr Center for Applied Economics, New York University.
    6. Paul Soderlind, 2004. "What if the Fed had been an inflation nutter?," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1471-1473.
    7. Edin, Per-Anders & Vredin, Anders, 1993. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Economic Journal, Royal Economic Society, vol. 103(416), pages 161-75, January.
    8. Gottfries, Nils, 2002. "Market Shares, Financial Constraints and Pricing Behaviour in the Export Market," Economica, London School of Economics and Political Science, vol. 69(276), pages 583-607, November.
    9. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
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