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A Simultaneous Model of the Swedish Krona, the US Dollar and the Euro

  • Lindblad, Hans

    ()

    (Sveriges Riksdag)

  • Sellin, Peter

    ()

    (Monetary Policy Department, Central Bank of Sweden)

Registered author(s):

    In this paper we simultaneously estimate the real exchange rates between the Swedish Krona, the US Dollar and the Euro. A prime candidate for explaining the exchange rate movements is relative potential output. Since this variable is unobservable, cyclical and potential output are estimated in an unobserved components framework together with a Phillips curve. Our empirical exchange rate results are in line with theory. Increases in relative potential output and the terms of trade strengthen the exchange rate, while a relative increase of the fraction of middle-aged people in the population and budget deficits depreciate the exchange rate. The estimates suggest that the recent deterioration of the relative budget situation for the US versus Europe is a prime candidate for explaining the USD/EUR exchange rate change lately.

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    File URL: http://www.riksbank.se/upload/Dokument_riksbank/Kat_publicerat/WorkingPapers/wp_193.pdf
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    Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 193.

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    Length: 37 pages
    Date of creation: 01 May 2006
    Date of revision:
    Handle: RePEc:hhs:rbnkwp:0193
    Contact details of provider: Postal:
    Sveriges Riksbank, SE-103 37 Stockholm, Sweden

    Phone: 08 - 787 00 00
    Fax: 08-21 05 31
    Web page: http://www.riksbank.com/
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    1. James C. Morley & Charles Nelson & Eric Zivot, 2000. "Why Are Beveridge-Nelson and Unobserved-Component Decompositions of GDP So Different?," Working Papers 0013, University of Washington, Department of Economics.
    2. Mikael Apel & Per Jansson, 1999. "System estimates of potential output and the NAIRU," Empirical Economics, Springer, vol. 24(3), pages 373-388.
    3. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "The unsustainable U.S. current account position revisited," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    4. Philip R. Lane & Gian Milesi-Ferretti, 2001. "Long-Term Capital Movements," NBER Working Papers 8366, National Bureau of Economic Research, Inc.
      • Philip R. Lane & Gian Maria Milesi-Ferretti, 2002. "Long-Term Capital Movements," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 73-136 National Bureau of Economic Research, Inc.
    5. MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank, Research Centre.
    6. Philip R. Lane & Gian Milesi-Ferretti, 2001. "Long-Term Capital Movements," IMF Working Papers 01/107, International Monetary Fund.
    7. Annika Alexius & Jonny Nilsson, 2000. "Real Exchange Rates and Fundamentals: Evidence from 15 OECD Countries," Open Economies Review, Springer, vol. 11(4), pages 383-397, October.
    8. Ian Marsh & Ronald MacDonald, 1999. "Currency Spillovers and Tri-Polarity: a Simultaneous Model of the US Dollar, German Mark and Japanese Yen," Working Papers wp99-14, Warwick Business School, Finance Group.
    9. Hjelm, Göran, 2001. "Total Factor Productivity and the Real Exchange Rate in a Small Open Economy: The Relative Importance of Permanent and Transitory Shocks," Working Papers 2001:23, Lund University, Department of Economics.
    10. Thomas Laubach, 1997. "Measuring the NAIRU : evidence from seven economies," Research Working Paper 97-13, Federal Reserve Bank of Kansas City.
    11. Laurence Ball & N. Gregory Mankiw, 1995. "What do budget deficits do?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 95-119.
    12. Lindh, Thomas & Malmberg, Bo, 1999. "Age Distributions and the Current Account -A Changing Relation?," Working Paper Series 1999:21, Uppsala University, Department of Economics.
    13. Jaeger, Albert & Parkinson, Martin, 1994. "Some evidence on hysteresis in unemployment rates," European Economic Review, Elsevier, vol. 38(2), pages 329-342, February.
    14. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2000. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," CEPR Discussion Papers 2511, C.E.P.R. Discussion Papers.
    15. Dungey, Mardi, 2004. "Identifying terms of trade effects in real exchange rate movements: evidence from Asia," Journal of Asian Economics, Elsevier, vol. 15(2), pages 217-235, April.
    16. Lane, P, 1999. "The New Open Economy Macroeconomics: A Survey," Trinity Economics Papers 993, Trinity College Dublin, Department of Economics.
    17. Alexius, Annika, 1999. "Sources of Real Exchange Rate Fluctuations in the Nordic Countries," Working Paper Series 90, Sveriges Riksbank (Central Bank of Sweden).
    18. Jocelyn Horne & Paul R. Masson & Jeroen J. M. Kremers, 1993. "Net Foreign Assets and International Adjustment; The United States, Japan, and Germany," IMF Working Papers 93/33, International Monetary Fund.
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