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Sources of Real Exchange Rate Fluctuations in the Nordic Countries

  • Alexius, Annika

    (Monetary Policy Department, Central Bank of Sweden)

In an attempt to move beyond the purchasing power parity hypothesis, this paper studies two issues. First, the causes of movements of real exchange rates are investigated. In contrast to the typical result, supply shocks are found to dominate the long-run variance decompositions for all countries. This suggests that productivity developments are the most important determinant of long-run movements in real exchange rate. A second topic is the relative importance of stationary and non-stationary components of real exchange rates. Also in contrast to previous findings, transitory shocks are more important than permanent shocks for three of the four countries.

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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 90.

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Length: 22 pages
Date of creation: 01 Sep 1999
Date of revision:
Publication status: Published in Scandinavian Journal of Economics, 2001, pages 317-331.
Handle: RePEc:hhs:rbnkwp:0090
Contact details of provider: Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
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