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Do Fundamentals Explain the Behavior of the Real Effective Exchange Rate?

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  • Nilsson, Kristian

    () (National Institute of Economic Research)

Abstract

In this study, we make use of time series analysis to calculate a real effective equilibrium exchange rate for Sweden. The results indicate that the krona was severely overvalued in late 1992, when the fixed exchange rate regime finally was abandoned. Furthermore, the results indicate that the real effective equilibrium exchange rate has depreciated substantially since the mid-1990s, primarily due to deteriorating terms of trade. The results indicate that the krona was undervalued by some 4 to 5 percent at the end of 2000, given the prevailing economic conditions. We also provide some arithmetical examples of SEK/EUR conversion rates, under various assumptions, to provide some guideline if Sweden is to adopt the common currency in the near future.

Suggested Citation

  • Nilsson, Kristian, 2002. "Do Fundamentals Explain the Behavior of the Real Effective Exchange Rate?," Working Papers 78, National Institute of Economic Research.
  • Handle: RePEc:hhs:nierwp:0078
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    References listed on IDEAS

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    Cited by:

    1. Lindblad, Hans & Sellin, Peter, 2003. "The Equilibrium Rate of Unemployment and the Real Exchange Rate: An Unobserved Components System Approach," Working Paper Series 152, Sveriges Riksbank (Central Bank of Sweden).
    2. Aaron G Grech, "undated". "Assessing employment in Malta," CBM Working Papers WP/01/2006, Central Bank of Malta.

    More about this item

    Keywords

    BEER; conversion rate; equilibrium exchange rate; real exchange rates;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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